Investing in

New Zealanders

Annual Report 2017

Accident Compensation Corporation
Te Kaporeihana Āwhina Hunga Whara
Your ACC
No other country in the world has ever provided a comprehensive
accident insurance scheme like ACC’s.

The ACC Scheme means that whenever an injury happens to anyone

in New Zealand, whether it’s their fault or not, the cost of their
treatment, rehabilitation or compensation is covered.

But there’s a lot more to us than that.

It all starts before people are injured. If we can prevent injuries and
accidents, be they at home, at work or at play, New Zealanders will
need to lodge fewer claims. That’s why last year we invested $55
million in injury prevention, and that investment will continue to grow
in the coming years.

New Zealanders live their lives safe in the knowledge that if they have
an accident, their treatment and rehabilitation will be covered. Most
claims are for relatively minor injuries: a rolled ankle at football; a
cut hand at work; a slip in the kitchen. But we also cover thousands
of Kiwis who have long-term requirements and need significant help,
such as modifications to vehicles or homes.

So to help pay for the cost of injuries, we oversee one of the largest
investment funds in New Zealand.

Our aim is to ensure that these investment funds are used to reduce
the incidence and severity of injuries, and cover the lifetime cost of
claims we already know about. That could be one visit to a GP or many
years of care and support.

It’s a scheme for New Zealand and New Zealanders.

1
By the numbers

$55 1,946,368
new claims received
million
injury prevention
investment

reaching 528,628 people

37,559
clients had surgery

3,502
employees working
1,041,814
for New Zealanders clients visited their GP

102,257
clients received weekly compensation

2 ACCIDENT COMPENSATION CORPORATION

Our performance this year
More than 500,000 $55 million invested in injury
New Zealanders reached by our injury prevention. For every dollar invested,
prevention programmes we project a return of $1.63

62% of New Zealanders have trust One category 3 privacy breach

and confidence in ACC, a significant and a 21% reduction in all
improvement on prior years and privacy breaches
in line with our target

Levied accounts
78% of our clients were satisfied (Earners', Work and Motor Vehicle)
with the service we provided, 2% are now 121.7%  funded
higher than last year
Investments team beat benchmark
1.2 days average to decide on cover for22 nd
year, and generated
on 1.95 million new claims received $2.1  billion of income

Seven days to make first Our reserves portfolio returned

weekly compensation payments, 5.7% this year, 1.4% better
16% quicker than last year than benchmark

80% of clients surveyed were Surplus of

still back at work nine months after $607 million
being rehabilitated. This durable result to support the Scheme
is1% better than last year
Levy reductions in the three levied
85.8% of clients not in the accounts of more than

workforce were no longer requiring $2 billion

in the past five years
support from ACC after 12 months

68.4% of clients were back Seven engaged employees for

at work within 10 weeks,0.9% every disengaged employee, 17%
ahead of target better than last year

ANNUAL REPORT 2017 3

How your ACC is funded
Government Employers Employees Motor vehicle
owners and drivers
$1,088m $791m $1,397m
$552m
The Non-Earners’ The Work The Earners’ Account
Account is for people Account is for is for injuries outside The Motor Vehicle
not in the workforce, injuries at work work, eg at home or Account is for all
such as children and while playing sport road-related injuries
retirees

Where the money comes from

Government and Investment
employees earnings

$278m $2,052m
The Treatment Injury Income from our
Account is for injuries investments
caused by medical
treatment

Every New Zealander, and

visitor to New Zealand,
is covered

Surplus
Costs
$607m
$737m The surplus helps
Operating and support the Scheme

$
other costs
Financial compensation
and vocational
Outstanding
rehabilitation
claims liability

$1,076m $1,377m
Payments for people who
Additional funds How the money is used are injured and can’t return
to cover the future
to work, and helping people
costs of claims
back into work
Treatment and
Injury prevention emergency travel Care and support

$55m $1,659m $647m

Helping the community Includes visits to Helping people back to
understand how to GPs, x-rays, surgery independence, eg through
stay safe and healthy and associated travel having carers
or home alterations

4 ACCIDENT COMPENSATION CORPORATION

Contents
Overview����������������������������������������������� 7 Governance and managing risk������������� 49

From the Minister����������������������������������������8 Governance�����������������������������������������������50

From the Board��������������������������������������������9 The ACC Board������������������������������������������54

From the Chief Executive��������������������������� 10 Managing risk�������������������������������������������� 57

Delivering on our outcomes������������������������ 11

Our role and strategic direction������������������12 Investments report������������������������������� 61

Outputs and outcomes�������������������������������13

Transforming ACC��������������������������������������14 Statement of performance and

financial statements������������������������������77

Our performance this year��������������������� 19
Increase the success of our injury
prevention activities����������������������������������20
Statement of responsibility����������������������� 78
Statement of performance������������������������ 79
Financial statements���������������������������������94

Improve our customers’ outcomes Report of the Office of the

and experience������������������������������������������24 Auditor-General���������������������������������������143

Improve the way we protect our

customers’ personal information��������������30
Glossary of terms�������������������������������� 146
Maintain the financial sustainability and
governance of the Scheme�������������������������34

Organisational culture, capability Directory�������������������������������������������� 149

and capacity����������������������������������������������42

An online version of this Report can be found at www.acc.co.nz/about-us/corporate

ANNUAL REPORT 2017 5

Overview

7
From the Minister
New Zealanders can be justifiably proud of ACC, our
no-fault accident insurance scheme that provides
cover to all New Zealanders and visitors to our
country.
This year the Government was able to confirm a
further $126 million of reductions in ACC levies for
motor vehicle, work and earners’ levy payers. These
reductions reflect the strength of the Scheme’s
financial position. The solvency of each of the levied
accounts is above the target level of 100-110%,
despite more than $2 billion of levy cuts in the last
five years.
The levy reductions are more remarkable when
considering the pressures on the Scheme. The
record number of new claims received put upward
pressure on the costs to provide the treatment and
rehabilitation services delivered to ACC’s clients.
The Government is pleased that the operational
controls implemented by the Board, coupled with
favourable movements in economic factors and
global markets, allowed ACC to record a surplus of
$607 million.
ACC’s performance this year has further reinforced
the sustainability of the Scheme and demonstrated
how the investments in transformation are making
a positive impact on all aspects of the Scheme’s
performance.
This year saw ACC further increase its investment
in injury prevention to $55 million, in line with the
ACC Board’s strategy to prioritise the reduction
in the incidence and severity of injuries. ACC
also collaborated with WorkSafe New Zealand
to develop the Harm Reduction Action Plan, a
milestone in the prevention of workplace injury.
ACC has continued to progress its five-year
programme to transform its people, processes
and technology. The Government is pleased
with the improvements that have been made to
date, all of which reflect the ambition to create a
modern, integrated and customer-focused ACC.
The business community in particular has seen
improvements through simplified invoices and
online access to their information. The programme
will now increasingly focus on transforming the
client experience.
8 ACCIDENT COMPENSATION CORPORATION
It is reassuring to see
this transformation
is being delivered
without compromising
ACC’s day-to-day
performance. ACC
received nearly two
million claims this
year, an all-time
high. Despite the
pressure created
by those volumes,
rehabilitation
performance for
clients in work has improved, and the public’s
satisfaction, trust and confidence levels have
remained largely stable.
The Board has recognised the need to improve
reviews performance. The Government is
confident this will improve, with the Board already
making considerable progress in implementing
the recommendations of the Government-
commissioned Miriam Dean QC review of dispute
resolution.
The Government expected ACC to be a lead
agency in the commitment to Christchurch and
particularly its central business district. During
the year ACC was able to complete its transition
to the Christchurch Integrated Government
Accommodation – another important milestone in
the ongoing rejuvenation of central Christchurch.
I would like to thank the ACC Board and particularly
the Chair, Dame Paula Rebstock, for their work
this year. I also extend my thanks to ACC staff for
their dedication to making a positive difference to
New Zealand.
Finally, I would like to acknowledge the work of the
Honourable Nikki Kaye and Honourable Nathan
Guy, who both served as Minister for ACC during
the year, for their stewardship, and my Associate
Minister, the Honourable Jacqui Dean.
Hon Michael Woodhouse
Minister for ACC
From the Board Overview

ACC’s role starts with injury prevention, and

we have continued our strategy to invest more
in preventing injuries as well as reducing the
severity of injuries that do occur. This year our
investment totalled $55 million. We partnered
with organisations and community groups across
the country to reach more than 500,000 New
Zealanders through our programmes. And we
achieved an estimated claims cost reduction of $1.63
for every $1.00 we invested, our highest return ever.

For those New Zealanders who do suffer injury,

we provide support so they can return to work and
everyday life. Our Shaping Our Future strategy ACC Board (from left to right)
Anita Mazzoleni, Professor Des Gorman, Kristy McDonald QC,
is an ambitious and challenging programme of Trevor Janes (Deputy Chair), Dame Paula Rebstock (Chair),
change that aims to put the customer at the Leona Murphy, James Miller, Gillian Spooner.
heart of everything we do, and to find new ways
to make it easier for New Zealanders to deal with This year we took care of a record number of new
us. Our progress against the 2014 performance claims, while the cost of providing the range of
improvement framework was independently tested treatment and rehabilitation services to our clients
this year, and it was pleasing that the review continued to increase. Despite these challenges,
highlighted the significant progress made towards the Scheme maintained a strong financial position.
meeting the aims of our Shaping Our Future The solvency of each of our levied accounts
strategy. remained above the target level of 100-110%. Our
investment team again delivered a performance
The review also noted other positive changes we
that beat their benchmarks for a remarkable 22nd
have made, including the way we interact with our
consecutive year. The Scheme delivered a surplus
customers. These changes are reflected in New
of $607 million, yet we were still able to deliver levy
Zealanders’ increased satisfaction and trust and
reductions for the third consecutive year.
confidence in the past three years.
We would like to thank Scott Pickering, the
We have a strong focus to ensure disputes are
Executive team and all of ACC’s people for their
resolved fairly, and we are continuing to consult
continued dedication to our vision of creating a
with a wide range of New Zealanders to ensure
unique partnership with every New Zealander, and
outcomes are fair and transparent. We are
improving their quality of life by minimising the
part of the way through making the necessary
incidence and impact of injury.
improvements to our dispute resolution activities,
and are working hard to complete this as soon as
possible.

Dame Paula Rebstock DNZM Trevor Janes

ACC Chair Deputy Chair 

ANNUAL REPORT 2017 9

From the Chief Executive
This year we celebrate 50 years since the Royal
Commission produced its ground-breaking report
which would give rise to the establishment of ACC
seven years later.
The unique nature of the Scheme – a scheme for all
New Zealanders – means we have a responsibility
to nurture it through careful investments. We do
this by investing to prevent injury and reduce the
impact of injuries that do occur, to shape a future
of improved outcomes and experiences for all our
customers, and by managing our investment funds
to pay for the future costs of injuries. Through these
investments, we are protecting the Scheme for New
Zealanders now and in the future.
Despite our prevention investments, our
customers need our support to return to work and
independence after injury. Last year we supported
more than 93% of people to return to work within
nine months, and our short-term rehabilitation
performance improved with 68.4% of people
returning to work within 10 weeks. What was
pleasing was that 80% of people who returned
to work were still in work a year later. These
improvements demonstrate that our investment
in improving client outcomes is making a positive
difference.
Our transformation is continuing to gain
momentum. We have invested in improving our
customers’ digital experience through initiatives
like the MyACC business portal and our new
website. Weekly compensation processes have
been streamlined to ensure clients can access
entitlements faster. Our redesigned, easy to
understand levy invoices have been rolled out. We
are easier to get in touch with through changes to
our contact centre hours.
More changes are planned, and we are transitioning
to a new case management approach. Our model
has not been updated in 20 years, and has not
kept pace with changes in how customers want
to receive services. The new approach will see
clients receive a more tailored experience designed
to ensure they receive the right treatment and
rehabilitation services at the right time. We are
confident this will improve outcomes for clients and
help to meet their expectations.
Increasing public trust and confidence remains a
priority. Our trust and confidence results remain the
same as last year, the highest result since 2008.
10
Having a diverse
workforce with
a broad range of
experience and
cultures provides
better service as
they represent and
understand the
customers they serve.
This is a long-term
area of focus. That’s
why we partnered
with Paralympics New
Zealand, TVNZ and
Attitude Pictures to support the most extensive,
free-to-air coverage ever shown in New Zealand of
the Paralympic Games in Rio de Janeiro.
It’s also why we developed Whāia Te Tika, to deliver
what’s right for Māori. This strategy aims to achieve
equitable outcomes for Māori by delivering services
that are appropriate, and in a manner which best
meets the needs of Māori. For example, this year we
joined forces with iMOKO, a telehealth provider, to
promote injury prevention messages in Northland,
and with Te Whanau o Waipareira and Plunket to
promote child safety in cars in West Auckland.
We continue to be in a strong financial position
which has allowed us to reduce levies for the third
consecutive year. Our surplus position is the result
of good operational control, increases in market
interest rates, and our investment performance.
Finally, I would like to thank our people. It is a
pleasure and an honour to lead an organisation
that is so much a part of the fabric of New Zealand.
Our people’s sense of duty to do the right thing
for customers is one of ACC’s greatest strengths. I
applaud them for it.
Scott Pickering
Chief Executive
ACCIDENT COMPENSATION CORPORATION
Delivering on our outcomes
We have three outcomes that we aim to achieve in
the long term.
Reduce the incidence and severity
of injury
Injuries are a serious and costly issue. The impacts
of injury go beyond the individuals’ pain, loss
of earnings and reduced quality of life, to their
families, their employers, our health system and our
communities.
We help to reduce the number of injuries by
investing in programmes that encourage
individuals, businesses, families and communities
to reduce the risk of injury to themselves and
others.
The importance of partnerships for injury
prevention cannot be understated. They mean we
can work with specialist organisations in areas as
diverse as forestry, the elderly, sports and reducing
the impact of sexual violence.
We have grown the number of initiatives from 20 in
late 2014 to 115 today. And we have increased our
investment from $30 million to $55 million in the
past two years.
That increase in investment reaches New
Zealanders throughout their lives, from toddlers to
the elderly, whether at home, on the sports field,
working or at school.
And we know we are having a meaningful impact in
reducing the incidence and severity of injury, with
our return on investment being $1.63 for every dollar
spent.
Rehabilitate injured people more
effectively
Research shows that when people make a rapid
return to independence after injury, their overall
health and wellbeing is significantly improved, and
the social and economic impacts of their injuries on
their families, communities and New Zealand are
greatly reduced.
ANNUAL REPORT 2017
Overview
Therefore delivering high-quality rehabilitation
services to clients is critical to the Scheme’s
success.
Our goal is to ensure that people with injuries
receive the rehabilitation they need to return to
work or independence as quickly as possible.
This year, new claims reached almost two million.
Despite this challenge, we exceeded our targets for
our key 10-week and nine-month return-to-work
measures.
We also demonstrated that we are effectively
supporting our clients to return-to-work by
measuring the durable return to work rate. This
increased from 79% to 80% this year, a mark above
the Australian benchmark of 77%1, a trend we aim
to continue in 2017/18.
New Zealand has an affordable
and sustainable Scheme
We ensure we are financially sustainable each year
by collecting levy revenue, and earning investment
income on that levy revenue, sufficient to cover the
lifetime cost of injuries incurred in that levy year.
This means the Scheme is fair to current and future
generations, and affordable for all New Zealanders.
The target ratio of this year’s total levies to the
total claims incurred for this year’s accidents was
between 0.9 and 1.1. The actual ratio for this year
of 0.8 reflects lower levy collections (to reduce
solvency in our three levied accounts towards their
target funding band of between 100% and 110%),
and higher claims growth. However, we expect to
meet the target ratio in the medium term.
1 The Australian benchmark is measured every two years and was
last set in 2015/16.
11
Our role and strategic direction
A scheme for New Zealand
The Accident Compensation Corporation (ACC)
is the Crown entity set up under the Accident
Compensation Act 2001 (the AC Act) to deliver New
Zealand’s accident insurance scheme (the Scheme).
The purpose of the Scheme is to deliver injury
prevention initiatives and no-fault personal injury
cover for everyone in New Zealand, including
overseas visitors. Under the Scheme, individuals
forgo the right to sue for compensatory damages
following injury, in exchange for comprehensive
accident insurance cover and compensation.
Our strategic direction reflects the Government’s
priorities for ACC as well as how we contribute
to the long-term Government outcomes for New
Zealand, including Better Public Services Result
Areas 9 and 10, which relate to improving digital
interaction with the government.
Our vision and values
As a Crown entity, we need to demonstrate that
we’re improving outcomes for New Zealanders.
Our vision is to create a unique partnership with
every New Zealander, improving their quality of life
by minimising the incidence and impact of injury.
We will deliver on our vision by delivering on our
outcomes and strategic intentions.
The values we have adopted as we set about
achieving our vision are:
• putting people before process
• being good partners
• promoting safe Kiwis
• being responsible stewards
• being fair and open in all our dealings.
12
Our outcomes
Our outcomes articulate what we are delivering in
relation to our core role: supporting a healthy and
prosperous New Zealand.
The Statement of Intent 2015-2019 outlines the
three outcomes that we aim to deliver for New
Zealanders:
• reduce the incidence and severity of injury in New
Zealand
• rehabilitate injured people in New Zealand more
effectively
• ensure New Zealand has an affordable and
sustainable scheme.
Our strategic intentions
Our strategic intentions outline the areas
where we are concentrating our efforts. Our
strategic intentions reflect our outcomes and the
Government’s priorities for ACC. These are:
• increase the success of our injury prevention
activities
• improve our customers’ outcomes and experience
• improve the way we protect our customers’
personal information
• maintain the financial sustainability of the
Scheme.
Our outputs
Our outputs translate how we will seek to deliver
our outcomes, in our four key business areas:
• injury prevention
• levy setting and collection
• investment management
• claims management.
Our annual performance against the Service
Agreement 2016/17 is reported in the statement of
performance which can be found on page 79.
ACCIDENT COMPENSATION CORPORATION
 Outputs and outcomes Overview

Outcomes

Rehabilitate
injured
people more
Reduce the New Zealand
effectively
incidence and has an affordable
severity of and sustainable
injury scheme

Vision

ACC creates a unique partnership with every

New Zealander, improving their quality of life by
minimising the incidence and impact of injury.
Strategic intentions

Injury Customer Privacy Financial Strategic intentions

prevention outcomes & sustainability
experience & governance

People Information
technology

Safe Kiwis
Values Responsible stewards
t
I nj

en
em
ur
yp

ag

Good partners People before process

re

en
an

tm
v

ti o
n n
•C Fair and open t me
laim
In ve s
sm •
anag
ement collection
• Lev y setting and

Outputs
ANNUAL REPORT 2017 13
 Transforming ACC
Did you know…
This year we received 1.95 million new claims. We
also paid for more than one million people to see
their GP and half a million to visit a physiotherapist.
At the same time, we continued investing in a
significant transformation programme, the largest
in our 43-year history. It’s part of our Shaping Our
Future strategy aimed at putting the customer at
the heart of everything we do.
It’s being done carefully and methodically so
that, over time, we can deliver better services and
outcomes for New Zealanders.
Beginning our transformation
The Transformation programme is the result of
asking 5,500 providers, clients, business customers
and employees what they thought and felt about
ACC, and what they’d like us to do better. That’s a
lot of people with a lot of different experiences, and
a lot of opinions.
But it had to
Kiwis told us we needed to happen. We knew
be more responsive, more we had become
transparent and easier to an incredibly
complex
deal with.
organisation
and we’d been hard to deal with in the past. What
we didn’t really know was how New Zealanders
perceived us when they had to deal with us.
Kiwis told us we needed to be more responsive,
more transparent and easier to deal with. And from
these insights we developed a programme of work
to deliver better services by integrating and aligning
our people, processes, technology, and information.
And that’s the point. While undoubtedly technology
underpins much of our evolution, it’s about
transforming the whole organisation, from our
culture to how we deliver services to customers.
14
What happened this year?
One of the core principles of the Shaping Our Future
strategy is to question what we do now and how we
could make it better for customers.
For example, the model we use for case
management has not fundamentally changed for 20
years. So we are building a client-centred process
that will help clients receive faster access to support
services that will allow them to recover from, or
manage, their injuries.
Mishaps and accidents affect more than the injured
people. Their employers and health providers also
have parts to play in their recovery and return to
work. To make this process more transparent, we’re
starting to invest in a client-centred rehabilitation
plan that will give visibility and control to clients
and their providers to view, update and access
services they need to assist with recovery.
Last year we streamlined our weekly compensation
processes to make it faster for clients to access
compensation, and allow case managers to focus on
client rehabilitation.
We’re finding ways to use technology and data
to improve customers' access to our services. For
example, we know our business customers want to
deal with us online, so we’re improving our digital
services and the processes and systems that sit
behind them.
Our website has also been completely changed.
We’ve removed a large number of pages that were
out of date, duplicated or contained information
our customers didn’t want or need. The website
now has an intuitive, customer-friendly design
that makes navigation simpler – it’s accessible and
available on mobile devices, streamlined and fit for
purpose. Importantly, it allows people to find what
they want more easily.
Last year we redesigned our levy invoices. The
new version was rolled out throughout this year,
meaning all business customers are now receiving
the new, shorter, simpler version. The feedback
has been that the simplicity and clarity of the
information are much appreciated.
ACCIDENT COMPENSATION CORPORATION
Getting it right Overview
The investment in the Shaping Our Future strategy
is organisation-wide, and there is no denying the How people prefer to
central role technology plays. How people prefer to interact with us will
interact with us will continue to evolve and we need continue to evolve in the
to be flexible to accommodate that.
next three years and we
That is what customer centricity is all about. need to be flexible to
That’s why we have to be flexible in our delivery, accommodate that.
but strong on our commitment – to deliver better
services to, and for, our customers.

Data transfer to new systems for such a large

transformation is always going to provide its
challenges. We must ensure we plan carefully and
keep a close eye on how we are doing, especially
when looking to maintain accuracy and privacy.

At the end of the day, what we are doing is for our

customers, so making sure what we do is of the
highest quality is imperative.

Where to from here?

Our next big milestone is the launch of a new policy
and levy management system. This will mean our
business customers will be able to manage their
levy accounts more easily, and with greater online
and mobile capabilities.

Another strand of our initiative is the ability,

over time, to integrate what we are doing with
government departments such as Inland Revenue
and the Ministry of Social Development. Again,
this is solely aimed at making it easier for New
Zealanders to deal with one entity that can interact
with others, thereby streamlining many activities.
However at all times, it is critical that we protect
the integrity of our clients’ data.

Our clients, our business customers and our people

have all said we need to change. We have listened to
them and embarked on a massive transformation.
We know it will not always be easy. But we also know
that we are doing the right thing and that we are
focused on continuously improving what we do.

ANNUAL REPORT 2017 15

A total Overview

transformation
How we all do business, get information and
interact will change markedly in the future, just as it
has in the past 20 years.

That’s why our Shaping Our Future strategy aims

to look holistically at everything we do, from our
technology to how we need to train our people for
the challenges of the future.

Critically, it has allowed us to challenge the way

we interact with all our stakeholders – clients,
providers, businesses and the public – and how we
might do things differently to make that experience
better, quicker and easier.

But our transformation is not just about technology,

systems and processes. Most importantly, it’s
about giving our people the tools they need to serve
our customers.

And the thinking and planning needed for

transformation can’t be done by a machine. It needs
people, our people.

The changes mean they will be doing their jobs

differently and, quite possibly, have different jobs.
So while the way we train, recruit and select our
people will change, one thing will never change –
our people will still be at the heart of ACC, and our
focus will always be on the customer.

17
Our performance
this year

19
Increase the success of our injury
prevention activities
Cost effectiveness
Were we fair and affordable?
2016/17
Target
Performance scorecard 2015/16 Target Actual
The portfolio of injury
prevention investments
approved will have an
$1.60:$1 $1.35:$1 $1.63:$1
✔ Gandhi Nivas, a programme that offers emergency
assessed positive return on
investment
Did you know…
When Sir Owen Woodhouse released the report of
the Royal Commission on Workers Compensation
in 1967, he noted that the most important aspect of
the proposed scheme was to prevent injuries.
That’s why injury prevention is, and will continue
to be, a cornerstone of the Scheme. And that’s why
we’ve increased our investment in this area and
partnered with more organisations, and reached
more New Zealanders, than ever before.
And that’s why we’re committed to continuing
our strong focus on injury prevention by investing
further. We’ll add more programmes and
discontinue those that have run their course.
By preventing injuries, we help New Zealanders
enjoy the things they love in this remarkable
country of ours.
How do we choose the
initiatives?
Based on the severity of injuries, the number of
claims and the cost, and our research into what
works for our different target groups, we currently
focus on seven areas: falls, work, road, treatment
injury, sexual and family violence, sport and
community. Injuries from these seven areas account
for about 85% of new costs to the Scheme.
Some of our initiatives reach thousands of people
and span the generations. Our SportSmart
portfolio covers specific programmes targeting
injury reduction in rugby, football, netball, league
20
and touch, and is aimed not just at players, but
also coaches, referees and health care providers.
Within the programme there are also some generic
messages around issues such as concussion
protocols, and the importance of warming up.
met?
Other initiatives are much more discrete, but no less
important to the people they assist. An example is
housing, counselling, and social service referrals for
men involved in family violence, which aims to keep
their families safe.
The importance of partnerships
ACC has a duty
to reduce the We are not a sports
incidence and association, a road safety
severity of injuries group or a health provider.
by actively These types of organisation
promoting injury
are the experts we partner
prevention in
New Zealand with to reduce the impact of
communities. injuries across the country.
We are not a sports association, a road safety group
or a health provider. These types of organisation are
the experts we partner with to reduce the impact of
injuries across the country. And we are now working
with several of these partners to explore social
marketing as a way of communicating our injury
prevention programmes.
A good example is our work with the forestry
industry. Since 2013 the forestry sector has moved
from having a poor safety record to achieving
significant reductions in injury rates, down from 80
per 10,000 workers three years ago to 70 this year.
Our work with the forestry sector and unions on
Safetree, a programme that developed resources
for all parts of the sector, from forest owners and
managers to tree fallers and machine operators,
helped the sector in its early work to improve safety.
From there we have grown our involvement with an
investment of $1 million over three years with the
Forest Industry Safety Council, which is leading the
ongoing change across the sector, a great example
of an industry taking ownership for improving safety
from within.
ACCIDENT COMPENSATION CORPORATION
Last year, along with the Ministry of Health, the
Health Quality & Safety Commission (HQSC)
and district health boards (DHBs), we made a
commitment of $30 million to reduce the number of
falls and fractures amongst the older population.
This programme is our single largest injury
prevention investment.
What happened this year?
In April, for the first time, we published data on
treatment injuries (injuries that occur during or as
a result of health care) from all DHBs. This will be
updated every six months, and will include private
surgical hospitals in the next iteration.
This was part of another, broader, collaboration
with the DHBs and other clinical providers, and the
Ministry of Health and the HQSC. The aim is to help
reduce the number and the impact of injuries that
occur as a result of treatment. This initiative is being
supported by a significant investment over the
next five years. We have specific initiatives that will
run for several years to reduce harm from surgery,
prevent health-care-acquired infections, improve
medication safety, reduce pressure injuries, and to
reduce birth injuries (neonatal encephalopathy).
Sexual violence is one of the most damaging crimes,
with the Ministry of Social Development in 2013
estimating it costs the New Zealand economy $1.8
billion each year.
But more than that. It indelibly affects those
involved, so the more prevention there is, the
greater the benefits to people and communities.
With this in mind, we continued to invest in a
range of programmes such as our work with the
New Zealand Union of Students’ Associations to
prevent sexual violence, on and around, student
campuses. This provides continuity with the
secondary schools initiative Mates & Dates, which
promotes respectful relationships between people,
as well as an understanding of behaviours that
underpin violence.
In the workplace, our role is to design and deliver
effective injury prevention programmes, help
businesses have better health and safety practices,
and support them in rehabilitating employees when
injuries do occur.
On top of seven generic workplace programmes for
health and safety, we have 13 that target specific
industries, and three creating new channels for
health and safety information. These all support the
joint Harm Reduction Action Plan with WorkSafe.
ANNUAL REPORT 2017
Our partnership with WorkSafe New Zealand has
seen the launch of Around the Block – an online tool
that helps businesses identify and manage their
health and safety risks.
We are also developing an economic incentives
strategy for employers, and introducing targeted
financial incentives to encourage improvements in
health and safety performance.
There are many existing partnerships that
continued to deliver great results for us and New
Zealanders, such as our association with St John to
provide injury prevention and first-aid training to
primary and intermediate school children, and our Our
agreement with New Zealand Police that looks at performance
working on common areas of safety for families and this year
communities.
And we know our investments in injury prevention
are delivering results. Over and above a reduction
in the impacts that injuries are having on people,
their families and employers, our overall injury
prevention programme had a return on investment
of an estimated $1.63 reduction in claim costs for
every dollar spent, against a target of $1.35.
Where to from here?
In a busy year, we invested in programmes as
diverse as motorcycle safety and young driver
education, the health and wellbeing of the rural
sector, and supporting our Paralympians.
Next year, we will continue working with our
partners to develop and deliver new initiatives. Key
areas of focus will be doing more around treatment
injuries, growing our SportSmart programme, and
workplace safety.
We are committed to developing more partnerships
that will reduce the incidence and severity of
injuries, while continuing to deliver a positive return
on our investment.
Crucially, we will continue to do more and more
online so that resources are available to whoever
needs them at the click of a mouse or swipe on a
tablet.
Finally, we will continue to monitor and track our
programmes closely to ensure the best outcomes
for our customers and the communities we serve,
and take action if we are not achieving the best
possible results.
21
Starting early
Ten thousand children, 1,500 coaches and
thousands of supporters.

What better audience to introduce to injury

prevention?

The annual AIMS (Association of Intermediate and

Middle Schools) Games in Tauranga in September
2016 were for 11- to 13-year olds from more than 275
schools from across New Zealand.

But the key to getting them there was making

Our
sure they were fit and raring to go, and we are a performance
long-term partner in this. So in June and July this this year
year, we ran free coaching workshops around the
country for all AIMS Games coaches, parents and
teachers in preparation for the 2017 event.

In our SportSmart programme, we have resources

for coaches and athletes, activities to keep
competitors motivated in the run up to the event,
and a dedicated ACC SportSmart Warm Up zone
at the Games to drive home the message of good
preparation.

These children are our sports stars of tomorrow –

it’s best for them, their coaches and supporters to
have them learn early for life.

23
Improve our customers’ outcomes
and experience
Customer Impact
Did we meet expectations? Did we deliver?
2016/17 2016/17
Target Target
Performance scorecard 2015/16 Target Actual met? Performance scorecard 2015/16 Target Actual met?

Customer satisfaction Return to work within 10

– clients
76% 76% 78%
✓ weeks (70 days)
67.6% 67.5% 68.4%
✓
Customer satisfaction Return to work within nine
– levy payers
69% 71% 68%
✗ months (273 days)
92.8% 92.8% 93.1%
✓
Public trust and confidence 63% 62% 62%
✓ Durable-return-to-work rate 79.0% 78.0% 80.0%
✓
Return to independence for
Cover decision timeliness
1.1
days
1.2
days
1.2
days ✓ those not in the workforce
86.7% 86.0% 85.8%
✗
Average time to commence Number of long-term claims
weekly compensation
payments
8.3
days
<9
days
7
days ✓ returned to independence in
the previous 12 months
2,796 2,950 3,340
✓
Formal reviews as a
percentage of entitlement
claims
2.5% 2.6% 2.7%
✗ What motivates us?
Our focus is on putting customers at the heart of
Percentage of ACC reviews
upheld
84.2% ≥85% 81.7%
✗ everything we do, be they clients, health providers,
or business customers.

Average time to resolution for We’re always looking for new ways of doing things to
claims with reviews
88
days
<90
days
94.8
days ✗ make it easier for New Zealanders to deal with us.

This translates
into the public This year we were able
Did you know… trust and to maintain our trust and
confidence in confidence levels, as well
ACC was formed in 1974. That same year, colour
the Scheme
TV was still a novelty and TV was a key means of as customer satisfaction,
and how we
electronic information exchange. And very, very
manage it on a significant feat given
expensive. the scale of change we’re
the public’s
behalf. This undertaking.
Websites, social media and smartphones were still
decades away, yet today they are at the core of how year we were
we need to operate. And while we will always have a able to maintain our trust and confidence levels
customer focus, and interact with customers in the as well as customer satisfaction, a significant feat
most appropriate manner, technology is becoming given the scale of change we’re undertaking.
more and more embedded in all our lives.
We also invest in the future of the Scheme so all
New Zealanders can benefit. This is why we are
investing in our people and new technologies to
make the Scheme better, simpler and easier to
navigate.

24 ACCIDENT COMPENSATION CORPORATION

 What happened this year?
FOR OUR CLIENTS
There was an
For the past couple of years increase in claim
we have not reached the volumes this year,
targets we set for our key driven by factors
such as strong
10-week and nine-month
economic growth,
return-to-work measures. higher levels of
This year we exceeded both immigration, and
a greater number
targets.
of kilometres
travelled on our
roads. New claims rose 0.9%, to 1.95 million.
After accepting a claim, our role is to get the injured
person back on their feet and back to work as soon
as possible. For the past couple of years we have
not reached the targets we set for our key 10-week
and nine-month return-to-work measures.
This year we exceeded both targets, despite the
increase in claim numbers. Our 10-week rate
was 68.4% against a target of 67.5%, while our
nine-month rate was 93.1% against a target of
92.8%. This indicates that people were being
rehabilitated faster.
We have started work to launch client self-service.
This will be the first digital ACC experience for
people who have injured themselves. Client self-
service will give greater control to people who
have suffered injuries by allowing them to manage
aspects of their recovery themselves. This project
was developed in conjunction with our clients, and
focuses on how we engage with them to ensure they
get the outcomes that are right for their particular
circumstances.
When a client gets injured, they may be entitled
to compensation for loss of earnings if they are off
work for a period of time. We spend a lot of time
supporting injured clients who are often with us
for a long period of time. This year the number
of clients who received weekly compensation for
more than one year grew by 401, less than half the
increase in 2015/16. We also helped 3,340 existing
long-term clients back to independence.
ANNUAL REPORT 2017
In March, we unveiled an initiative to make weekly
compensation payments simpler and faster. Since
then, we have made a 1.3 day improvement in
the time to set up payments, and achieved 97%
customer satisfaction for this initiative.
Often clients need to return to work gradually.
When this happens, an arrangement has to be made
between ACC, the client, and their employer as to
the level of the client’s continuing compensation.
We have streamlined this process so there are no
weekly forms to fill in, clients suffer no interruption
to their incomes, and there is a lower administrative
burden for employers and our staff.
Our
We know all of our decisions are open to challenge performance
and review, and we do our best to make quality this year
decisions and help our clients understand our
rationale for these. However, our formal reviews
volumes increased this year and we are taking
longer to resolve them. We have been working to
create a clearer pathway for resolving issues prior to
formal review.
We are also focussed on reducing the time taken to
work through the reviews process and increasing
the transparency of decisions for our clients. This
focus is consistent with the findings of the Miriam
Dean QC report. We implemented a number of the
recommendations to address the report findings
during the year.
FOR OUR PROVIDERS
Our providers are a varied group that includes,
amongst others, GPs, physiotherapists,
acupuncturists, chiropractors, osteopaths, nurses,
carers and occupational therapists.
They all have different roles to play and need
different information from us to help them best
meet our mutual clients’ needs.
That’s why we developed Your ACC Dashboard:
Data Driven Insights for each provider group. These
reports are individualised to practice level so a
provider can see how their statistics compare
to national averages. This is useful as it allows
providers to identify the types of injury they are
treating, the costs, and the way they fit into their
clients’ overall rehabilitation.
25
Our new Provider Service Delivery operating model
will enable us to build new capabilities and ways of
working that support our ambition to be a strategic,
effective and valued partner to the health sector.
Our aim is to become a customer-centric
organisation, and that means building strong
relationships with all our providers. This can be a
difficult task if we don’t have a consistent way of
recording data, especially if customers are dealing
with several people within ACC.
We have therefore been working on a customer
relationship management system. The first phase,
which involved setting up the new system and
migrating data to it, is complete and we are now
testing the system with 100 of our top providers. We
hope to have it available for all providers within the
next year.
FOR BUSINESSES LARGE AND SMALL
In April we launched a new digital service for
self-employed business customers, MyACC for
Business, which can be used on a smartphone,
tablet or computer.
It allows customers to self-register, view their levy
and invoice information, and pay their levies. We
will be adding more features throughout 2017.
All our business customers received the new,
simplified levy invoices this year, and to date the
feedback has been that they are much easier to
understand.
The ShapeYourACC website has created a more
open and user-friendly feedback channel for levy
payers. We received 1,081 submissions this year,
which significantly eclipsed previous submission
numbers.
The new two-year cycle for levy setting also offers
greater cost stability and surety for levy payers for a
longer period.
We have also been an active participant in the
development of the New Zealand Business Number
(NZBN) since its inception.
26
As a participating agency for Better Public
Service Results 9 & 10, we are committed to the
implementation of the NZBN and the programme
objective of ‘working together we can provide easily
accessible, seamless and integrated services that
are valued by businesses’. The NZBN has been
implemented so that it is recognised as part of the
levy invoicing.
FOR ALL NEW ZEALANDERS
We have made reductions totalling $162 million in
2016/17 in the work and motor vehicle levies, which
takes the total savings for New Zealanders to more
than $2 billion in the past five years.
We have extended our contact centres to operate
from 7am to
7pm – previously We are making reductions
it was 8am to totalling $126.2 million per
5.30pm for clients, annum in the work and
and 8am to 6pm motor vehicle levies, which
for business
takes the total savings for
customers and
New Zealanders to more
providers. We
launched a post-
than $2 billion in the past
contact survey five years.
to get direct feedback from our customers to help
further improve the customer experience and our
processes.
OUR COMMITMENT TO MĀORI
We continue to seek improvements in the way we
engage with, and deliver services to, Māori, and in
July 2016, the Board approved our Whāia Te Tika
(‘Pursue what is right’) strategy. The strategy was
developed, in part, due to the fact that Māori are
more likely to sustain serious injury, but less likely
to access ACC services. Further, some Māori find
our services difficult to access.
By endorsing Whāia Te Tika, we committed to a new
way of working with Māori that will also be applied
to other cultures where appropriate. The initiative
not only covers ACC and its people. It is also
aimed at working with clients, providers and other
stakeholders, such as Māori organisations and iwi,
to ensure we are delivering our services in the most
suitable way possible. Already we have a three-year
partnership with TupuToa to take in Māori and
Pasifika interns during each Christmas period.
ACCIDENT COMPENSATION CORPORATION
WE LISTENED
And we are changing the
We do take customer feedback seriously and we do way we communicate by
try to improve services as a result. making greater use of
Every year thousands of New Zealanders tell Twitter, Facebook, and
us what they want their ACC to look like, how webforms, as we know they
they want to deal with us, and where, from their are increasingly popular
perspective, we can improve. channels that complement
more traditional ways of
One example is our investment in an Experience
communicating with our
Centre in Manukau, which opened in January 2017.
The Centre allows us to examine key issues that customers.
affect our customers, and design and test potential
solutions. Pivotal to this process is the involvement
Our
of our customers both in the identification of issues performance
and in the testing of improvements. this year

And we are changing the way we communicate

by making greater use of Twitter, Facebook, and
webforms, as we know they are increasingly popular
channels that complement more traditional ways of
communicating with our customers.

Where to from here?

The investment in our Shaping Our Future strategy
is at the core of our future development. From
it will come a range of initiatives all with one
aim of improving our customers’ outcomes and
experiences, while at the same time delivering a
financially sustainable scheme.

For example, we will be redefining our case

management model to give it a stronger focus on
where resources will have the greatest impact in
terms of helping our clients. Our case management
teams are helping with this work, and of course we
will be seeking plenty of customer feedback before
making any final decisions.

ANNUAL REPORT 2017 27

Right place,
right time
While injury prevention is at the core of what we do,
accidents do happen.

And when they do, our job is to help those people

back to health and independence.

Any amount of research will tell you that when

people make a speedy recovery after injury,
their overall health and wellbeing is significantly
improved. Our
performance
this year
That’s great for them, but it is also good for their
friends and families, the community and New
Zealand.

To make sure this happens, we need to be able to

tap into myriad networks, from health providers to
tradies, spreading the injury prevention message,
and helping those who have been injured.

Your injury could mean a couple of trips to a

physiotherapist. It could also mean home and car
modifications.

Your Scheme is about what is right for you if you get

injured, your circumstances, and how quickly we
can help you to get on the road to recovery.

It’s about recognising that every customer is an

individual with specific needs.

29
 Improve the way we protect our
customers’ personal information
Privacy How do we measure privacy?
Did we meet expectations?
This year we changed how we measure privacy
2016/17
breaches to align with guidance provided by the
Target Government Chief Privacy Officer (GCPO) (below).
Performance scorecard 2015/16 Target Actual met?
The new method gives us a better insight into
The number of category 3, 4 the impact that breaches have on clients and
and 5 privacy breaches and
near misses
New
measure <5 1
✓ customers.
Impact
score Description
Did you know… Small number of people affected, with
1 little or no potential or actual harm to
Every day our people deal with confidential the individual(s).
and sensitive information relating to providers,
Small number of people affected, with
employers and our clients. In fact we handle nearly
2 minor potential or actual harm to the
90,000 pieces of information every work day. In
individual(s).
a year that’s about nine million letters, 12 million
Either the information is not sensitive/
emails and 1.5 million phone calls.
highly sensitive and the potential or
And in every instance, our people aim to respect and actual harm to the individual(s) is
protect that information as if it were theirs. Backing 3 more than minor, or the information
them up are processes and systems that are is sensitive/highly sensitive and
designed to minimise the possibility of privacy the potential or actual harm to the
breaches and improve our privacy performance. individual(s) is minor.
Breach of sensitive or highly sensitive
information, with serious potential or
4 actual harm to the individual(s). The
incident may imply a system failure that
could undermine agency systems.
Breach of sensitive or highly sensitive
information, with serious potential or
actual harm to the individual(s). It is
5
likely that more than one type of harm
has occurred, and that harm is likely to
be ongoing.
Our people aim to respect
and protect information as
if it were theirs. Backing
them up are processes and
systems that are designed
to minimise the possibility
of privacy breaches and
improve our privacy
performance.

30 ACCIDENT COMPENSATION CORPORATION

Our limit was for fewer than five category 3 or 4
impact score breaches, and no category 5 breaches Customers, and their
for the year. privacy, are also at the
heart of our Transformation
Our four-year Privacy Maturity Plan will guide us
to our goals for the year 2020. To ensure that we programme. We are ensuring
continue improving our privacy performance in line that the Transformation
with the Plan, we commissioned an independent programme team and our
assessment of our maturity against the GCPO’s partners incorporate ‘privacy
privacy maturity assessment framework (PMAF). by design’ in the work
they do.
We managed to improve our performance in all nine
dimensions of the PMAF since our last assessment
in 2015, and have already met some of the targets
for 2020. Our
performance
this year
What happened this year?
This year, we reported one category 3 breach,
against a limit of fewer than five, and none at
categories 4 or 5. This is a positive result, reflecting
our focus on protecting our customer information.

Our breach and near miss totals are generally

tracking lower than in previous years, and the
significant majority are rated as category 1. This
means we are reducing breaches that have a major
impact on customers.

Our Privacy Officer visited all branches to discuss

reporting, trends and privacy maturity. This was
done in conjunction with launching the Privacy
Ambassador network, where some staff volunteered
to promote privacy actively in their local offices. The
network was developed because the clear message
from staff was that they wanted a privacy champion
onsite to raise awareness and establish better links
with the central Privacy team.

Embedding ‘privacy by design’

Across the business, we continued to embed
‘privacy by design', an approach, when designing
systems and business processes, that takes privacy
into account throughout the whole development
process. This included privacy assessments at four
branches, which highlighted our excellent privacy
culture at the front line.

Customers, and their privacy, are also at the heart

of our Transformation programme. We are ensuring
that the Transformation programme team and our
partners incorporate ‘privacy by design’ in the work
they do.

ANNUAL REPORT 2017 31

Online and
personal
There must be hundreds of John Smiths and Pat
Henares in New Zealand.

Plumbers, bus drivers, lawyers and goat farmers.

Newborns, teens, hipsters and retirees.

And when the Johns and Pats deal with us, they
need to be assured their personal information is
secure and confidential.
Our
Which is a big challenge, especially as we rely more performance
this year
and more on technology.

We are offering more online services for providers,

clients and businesses, so we need to be vigilant
about how we collect, store and distribute that data
as well.

For example, our new policy and levy management

system will let our business customers manage
their levy accounts with much greater online and
mobile capabilities. They can verify or change their
personal details in the office, at home or on site.

Technology empowers Johns and Pats, but their

information is private.

Our challenge is to ensure that as we become

more IT based we remain people-centric, and are
sensitive to individuals’ information.

33
Maintain the financial sustainability
and governance of the Scheme
Cost effectiveness
Were we fair and affordable?

2016/17 2016/17
Target Target
Performance scorecard 2015/16 Target Actual met? Performance scorecard 2015/16 Target Actual met?

Percentage of total Ratio of this year’s total levies

expenditure paid directly to
clients or for client services
86.0% 86.3% 85.8%
✗ to the total claims incurred for
the year’s accidents over time
0.8 0.9–1.1 0.8
✗
Total levies and appropria-
Investment performance after
tions as a percentage of gross
domestic product
1.6% 1.6% 1.6%
✓ costs relative to benchmark
0.55% 0.30% 1.47%
✓
Change in average treatment Return from insurance
cost per injury
1.7% ≤4.0% 3.4%
✓ operations
–$581m –$135m –$1,198m
✗

Did you know… The exception to this full funding objective is the
costs of Government-funded non-earners’ injuries
The Scheme is a very significant undertaking, and it incurred prior to 1 July 2001. These are funded on a
has grown considerably in the past 10-15 years. pay-as-you-go basis.

The future cost to meet current claims is $78.3 We contribute to achieving this fully funded
billion (with a present value of $37.7 billion), and we position by delivering the most appropriate
have delivered better than benchmark returns on rehabilitation and independence outcomes for our
the portfolio for 22 consecutive years. clients while carefully managing our controllable
costs to minimise the burden of levies on all
New Zealanders.
How your Scheme works
One of our four strategic intentions is to ensure the
financial sustainability and governance of the
Scheme. We need to make sure it is fair for
New Zealanders today and the generations to come.

The money we need to provide our services comes One of our four strategic
from levies on people’s earnings, businesses’
intentions is to ensure the
payrolls, petrol and fees from vehicle licensing,
and government funding. We allocate the money
financial sustainability and
collected into five accounts, each account covering governance of the Scheme.
a specific group of injuries. Each account operates We need to make sure it
independently and cannot cross-subsidise another. is fair for New Zealanders
today and the generations
Our broad financial sustainability objective is to to come.
ensure each levied account is in a fully funded
solvency position. Full funding means that, at any
point in time, the value of our investment portfolio
is enough to pay for the future costs of every claim
we have received to date.

34 ACCIDENT COMPENSATION CORPORATION

What happened this year? INVESTMENT PERFORMANCE
The Scheme recorded a surplus of $607 million, Once again our investment performance was a
compared with a deficit of $3.4 billion in 2015/16. highlight.
Details of the variances between the two years are
on page 39. For the 22nd consecutive year, our investment team
delivered returns that were better than benchmark.
We achieved a 5.7% investment return this year,
LEVY INCOME 1.4% better than benchmark. This generated $2.1
billion of income, and helped our investment
In 2016/17 we reduced work and motor vehicle levy
portfolio grow to $37.3 billion.
rates and held earners’ levy rates steady:
Funds under management and investment returns
• The average Work Account levy, paid by 40
14.6
16
35.5 37.3
employers, fell from 80 cents to 72 cents per $100 35 14

of liable earnings. This was the fourth consecutive 30 27.4 32.1 12 Our
24.4
year of levy reductions for this account. 25
10.2
10 performance

% return
9.7
20 8 this year
$B

• In the Motor Vehicle Account, we reduced the 15 6.3 5.7

6

average motor vehicle levy from $130 to $114. We 10 4

have also reduced the petrol levy from 6.9 cents 5 2

per litre to 6 cents from 1 July 2017. By comparison, 0

2012/13 2013/14 2014/15 2015/16 2016/17
0

the average motor vehicle levy in 2014/15 was $330. Investment funds under management % return after costs

We have been able to reduce these levies because

of the strength of the Scheme and the fact that the CLAIMS VOLUMES AND COSTS
levied accounts are fully funded. The financial impact of claims is driven by volumes,
Levy rates by year the cost per claim, the services we offer, and
1.48 1.48
329.93
legislative changes or legal rulings.
333.42
333.42
1.15
1.15
1.26 1.26 1.21 1.21 We aim to manage these costs by:
0.90
0.95 0.80
$
194.25
0.72 • investing in injury prevention to reduce the
130.26
113.94 frequency of accidents

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

• partnering with providers to effectively deliver the
Work Account (per $100 of liable earnings)
Earners’ Account (per $100 of liable earnings)
best outcomes for clients
Motor Vehicle Account (per motor vehicle)
• managing claims efficiently
The impact of these levy rate reductions, by
themselves, was to reduce our levy income by • managing the scope of the Scheme.
$162 million in 2016/17. This year claims costs increased by 6% to $3.7
However, our total levy income was higher because billion. These costs were affected by a combination
we collected $187 million in additional income due to of claim volumes, rehabilitation performance, our
higher economic activity than expected. This higher efforts to mitigate the impact of inflation, and the
economic activity created: wider scope of the Scheme.

• more people in the workforce than we expected Claim volumes grew again in 2016/17

• an increase in the size of the motor vehicle New claims rose 0.9% to 1.95 million, a record
fleet, which meant New Zealanders drove more number of new claims.
kilometres. The growth was driven by the strength of economic
activity:

• more people in work

• more vehicles on the road

• more kilometres driven.

ANNUAL REPORT 2017 35

New Zealand’s growing and ageing population also Rehabilitation rates
had an impact on the number of claims. 100
95
93.1
90
The number of claims is a strong indicator, but it is 85
88.8

the frequency of claims that is more important. If % 80

75
frequency rises, the longer-term cost of the Scheme 70
increases. 65
68.4

60
2012/13 2013/14 2014/15 2015/16 2016/17
This year, claims frequency in the Motor Vehicle, Ten weeks Six months Nine months

Non-Earners' and Work Accounts remained

relatively flat, and decreased in the Earners' The longer people are receiving support from
Account. This result reflects the combined impact of ACC, the harder it can be to return to work or
a number of initiatives: independence.

• our injury prevention initiatives
• improvements in vehicle safety and road
networks
• driver training for commercial and young drivers,
This year, the number of clients who received
weekly compensation for more than a year
increased by 401 to 12,691, well below expectations.
Long-term claims
12,290 12,691

and motorcyclists 11,483

3,340
10,793
Number

2,470
• the Health and Safety at Work Act 2015 reforms. 10,398
2,272
2,467
2,796

Over a longer period claims frequencies have

been increasing. This reflects economic activity 2012/13 2013/14 2014/15 2015/16 2016/17

(particularly gross domestic product growth and Number of long-term clients Long-term clients returned to independence

workforce participation), and the impact of our

Cost per claim increased
ageing population.
This year saw an increase in the average treatment
Claim frequency is rising fastest for people over
cost per claim.
65 years old. We know that the majority of these
claims relate to falls in the home. In response, we While the cost increases in elective surgery were
launched a significant nationwide injury prevention in line with last year, there was an increase in the
programme to reduce the number of falls and to overall average treatment cost to 3.4%.
improve the resilience of clients to recover from
falls. Cost per claim growth rates
7
5.9
6
This population shift will continue to be a challenge 5 4.7
for us. 4
5.3

% 3.5
3.6 3.6 3.4
3
Rehabilitation performance improved 2
2.3
2.1
1.7
1
Our continuing focus on rehabilitation is aimed at 0
getting our clients back to work or independence 2012/13 2013/14
Treatment
2014/15 2015/16
Elective surgery
2016/17

as soon as possible. We know that a rapid return

to work or independence makes a big difference
to people’s health and wellbeing, and reduces the
negative impacts of injury. It can also reduce the
future costs to the Scheme and levies.
This year, our rehabilitation performance for all
durations has improved, particularly for long-term
clients.
Our treatment cost increases are largely driven by
two factors:
• inflation, which is often much higher for the
medical-related services we purchase than the
more widely published baseline inflation rate
• demand to broaden our service offerings.

It is important that we respond to both of these

pressures to mitigate the impact on long-term
Scheme sustainability.

36 ACCIDENT COMPENSATION CORPORATION

 We work hard to minimise the impact of inflation by It is clear that our
working closely with our providers to manage costs. claims costs are With the Ministry of Health
Together we are working on ways to better under pressure we have significantly
purchase outcomes for our clients rather than from inflation and increased our funding of the
discrete services. We are also working with changes to our road ambulance service.
providers to redesign the supply chain for elective service offerings.
This is to ensure that it is
services to improve client outcomes while delivering We need to
able to fund double crewing
a more cost-efficient service. remain focused
on managing nationwide and invest
This year we saw an increase in the number of care these costs while further in the service.
hours we provided to injured clients, a factor which maintaining appropriate services for our clients.
has led us to review our processes. We are now
better at assessing the appropriate hours of support
to provide to these clients. We aim for the right OUTSTANDING CLAIMS LIABILITY (OCL)
level of care each client requires for their individual The OCL is a projection of the costs of supporting Our
injury-related needs. our clients into the future.
performance
this year
We are constantly faced with the demand to The OCL reflects the future cost of our current
broaden our service offerings or ensure we are claims. At the end of 2016/17, the OCL is valued at
meeting the reasonable needs of our clients. $78.3 billion, discounted to a present value of $37.7
Sensitive claims are a good example of this. Internal billion ($36.7 billion in 2015/16) in today’s money by
and external reviews of sensitive claims showed using a long-term interest rate.
that we had not been adequately supporting people The size of the OCL is influenced by a range of
who had suffered mental or physical injury as a factors:
result of sexual abuse. In response, we are now
providing a better range of support services which • the maturity of the Scheme
will improve the outcomes for our clients, but which
will also increase the cost per claim. • claim volumes and claim costs

Our investment in vocational rehabilitation services • interest rates and inflation

to help clients return to work earlier has increased.
• legislative changes.
In the past three years, this investment has
increased by 9.7% or $8 million. The Scheme is not yet mature as each year there
are more people entering the Scheme than leaving.
We purchase a
This growth will continue for decades, because the
We are constantly faced wide range of
Scheme is still relatively young.
with the demand to broaden capital items
our service offerings or for our clients, At the start of each year, we project the impact of
ensure we are meeting from small this effect on the OCL. For 2016/17, we expected the
the reasonable needs of independence impact of this Scheme growth to add $1.4 billion to
aids through to the OCL.
our clients.
extensive home
and vehicle modifications. These costs have been This year, we experienced more claims and an
increasing for the last three years (an increase of $11 increase in the average lifetime cost per claim than
million in 2016/17) as we work to enable our clients we had projected. As a result, our independent
to return to work or independence, and as we actuaries increased the value of the OCL by
replace older equipment for our longer-term clients. $830 million.
We have also seen a greater proportion of higher-
value items being purchased for our most seriously If interest rates increase, the value of the OCL
injured clients. decreases and vice versa. This year, the single
effective interest rate we used to discount the OCL
With the Ministry of Health we have significantly rose from 3.22% to 3.80%, reducing the OCL by
increased our funding of the road ambulance $3.5 billion.
service. This is to ensure that it is able to fund
double crewing nationwide and invest further in the This impact on the OCL was offset to some extent
service. by higher inflation expectations, which increased
the OCL by $1.2 billion.

ANNUAL REPORT 2017 37

In 2017 a change in legislation was enacted that Where to from here?
introduced pay equity for care and support workers.
This had an immediate impact on our OCL of $1.1 In a context of growth in claim volumes and costs,
billion, reflecting the expectation that the average we must have a strong platform from which we
future cost of care per hour for our current clients can provide the right balance of quality, efficiency
will increase by approximately 20% in the next and effectiveness of services to our clients and
four years. levy payers while maintaining a robust financial
position.
SOLVENCY Underpinning this financial position is the need to
have a consistent focus on:
Solvency is an indicator of the extent to which the
future costs of the Scheme are matched by the • reducing harm and long-term costs through our
investment portfolio we hold. investment in injury prevention
A key goal of the Scheme is to maintain our solvency • prudent cost management
levels within a target range of 100–110% over a 10-
year period to limit levy rate volatility. • strong investment performance

The solvency level for the levied accounts • delivering the benefits from our investments in
represents the combined impact of: transformation.

• levy revenue

• investment performance

• claim volumes and costs

• rehabilitation rates

• movements in the OCL.

For 2016/17, all levied accounts had solvency levels

above the target range despite the reduction in
levy rates.
Solvency by levied account
140

120 121.7
114.3
110.9
% 100
96.7

80

60
2012/13 2013/14 2014/15 2015/16 2016/17
Work (including gradual process) Total (including non-levied accounts)
Earners’ Motor Vehicle
Funding band

38 ACCIDENT COMPENSATION CORPORATION

Year-on-year change in financial result
30 June 2016 deficit
Income
Levy rates
Gross domestic product growth
Appropriation
Investment income
Cash cost of claims
Treatment costs
Rehabilitation costs
Compensation costs
Miscellaneous
Injury prevention costs
Transformation costs
Other operating costs
Outstanding claims liability (OCL)
Economic factors affecting
the OCL
Legislative changes
Other factors affecting the OCL
Unexpired risk liability (URL)
Annual change in the URL
30 June 2017 surplus
A detailed analysis of performance versus budget can be found in the statement of performance on page 79.
ANNUAL REPORT 2017
$M
(3,367)
Lower levy revenue due to reductions in the Work,
Earners’ and Motor Vehicle levy rates compared with
(162) 2015/16.
Higher levy revenue because of more people in
187 employment, increases in salaries and wages, and more
registered motor vehicles.
Increase in recorded income from the Government
155 appropriation to cover the costs of injuries to people not
in paid employment, and who were not injured in motor
vehicle accidents.
Total investment income, although higher than budget,
(1,206) was lower than the income achieved in 2015/16. The ACC
investment team achieved an annual return of 5.7% after
costs, outperforming benchmarks by 1.4%, a higher level Our
of outperformance than was achieved in 2015/16. performance
this year
Increase in expenditure for providing medical and other
treatment services to injured people, due to increased
(64) claim volumes and higher provider costs.
Increase in expenditure for providing vocational and
(62) social rehabilitation services to injured people, due to
increased claim volumes and higher provider costs.
Increase in expenditure for providing compensation for
loss of salaries and related support to injured people
(69)
due to increased claim numbers and higher wage levels
compared with 2015/16.
(8)
Increased investment in injury prevention initiatives to
(4)
reduce the incidence and severity of new injuries.
Increased expenditure on ACC’s Transformation
(39)
programme as we increase our transformation activities.
Increased expenditure to manage the greater number of
(6)
injured people.
During 2016/17, interest rates rose, reducing the OCL
by $9.8 billion compared with 2015/16. Inflation rates
increased in 2016/17, increasing the OCL by $2.7 billion
7,088
compared with 2015/16.
The impact of the pay equity legislation increased the
(1,437)
OCL by $1.1 billion.
The increase in the OCL for reasons other than economic
(392) factors reflects a range of factors, such as the number
of injured people in the year and the experience of those
claims.
The calculation of the URL reflects a number of factors,
including projected future levy income, injury rates and
(7) claims costs, as well as external economic factors such as
interest rates.
607
39
Investing in
New Zealand for
New Zealand
We have more than $37 billion in investments, the
largest investment portfolio in the country.

And more than two-thirds of all our investments are

in New Zealand. And it’s a diverse lot, from cash to
bonds, shares to property.
Our
In October 2016, we added another national brand performance
to our list – Kiwibank. this year

We think Kiwibank has a bright future. From

humble beginnings 15 years ago, it is now the
fifth-largest bank in New Zealand. It has three
shareholders – New Zealand Post, the New Zealand
Superannuation Fund and ourselves.

And we’re in it for the long run. While we obviously

see Kiwibank as a good investment, we also see
it becoming more and more a part of the fabric of
New Zealand life. It’s made in New Zealand for
New Zealanders, for the future.

And we’re proud to be a part of that.

41
Organisational culture, capability
and capacity
People Information technology
Did we meet expectations?
2016/17
2016/17
Target
Target
Performance scorecard 2015/16 Target Actual met?
Performance scorecard 2015/16 Target Actual met?

Employee turnover 12.10% ≤15% 11.40%

✓ Overall operational system
availability
99.60% 99.50% 99.90%
✓
High achiever turnover 7.50% ≤10% 7.50%
✓
What happened this year?
Ratio of engaged employees
to actively disengaged
employees
6.00:1 7.00:1 7.00:1
✓ Key to any development of our people is the
underlying understanding that through our Shaping
Our Future strategy, we are moving towards new
ways of working, and therefore better ways of doing
Did you know… the right thing at the right time for our customers.

We have an interesting workforce profile. Our While technology will drive much of this change, it
people are younger than the public service average, is imperative that our people are well prepared to
and stay with us for longer. meet our customers’ needs.

We’ve got a good mix. It means we have new Fundamental to this is making sure the talent
ideas and fresh thinking from our younger people, model we use is fit for purpose now and in the
and stability and knowledge throughout the future. To do this we consulted our people and have
organisation in what is a complex environment. been able to reduce the complexity in our processes.

That’s why what many organisations call Human During the year we defined the core capabilities
Resources, we call Talent. required for frontline roles now and in the future.
These reflect the vision, values, and culture required
to support transformation and ensure we have the
Why our people are important right people in the right roles at the right time. We
also implemented a workplace planning tool to
Our business stretches from Cape Reinga to Stewart
assist with organisational change and role-based
Island, and we need to have capacity across our
design.
network at all times. So when the earthquake hit
Kaikoura in the early hours of 14 November 2016,
it had a huge impact on our Wellington offices in
particular. Key to any development
of our people is the
Our corporate offices, which house most of our IT underlying understanding
infrastructure, were damaged, with some areas that through our Shaping
being closed for more than a week. For the rest of
Our Future strategy, we are
the country, it was largely business as usual as our
people made sure that the systems were still there.
moving towards new ways
of working, and therefore
It’s this planning and investment in our people and better ways of doing the
systems that ensure, even in times of emergency, right thing at the right time
we are able to continue serving our customers. for our customers.

42 ACCIDENT COMPENSATION CORPORATION

Part of this was the launch of an online career tool
for all of our people, and having career coaching
available to permanent employees who have been
with us for a year or more.
We also started to use a leadership approach
to help us develop and build capability for
our high achievers and for those going into
management roles.
To support this we developed a succession
framework and identified critical roles and potential
successors across the organisation, thereby
embedding knowledge about our business.
We are committed to improving continually the
health, safety and wellbeing of our people. This
year saw the roll-out of Thrive – Maximise your
potential, a programme designed to build emotional
strength and resilience, and give all our people
the opportunity to maximise their potential at
work and in their personal lives. We also improved
the management of off-site safety risks through
the implementation of an online risk assessment,
an offsite register, and duress alarms to ensure
assistance to people working off-site.
And we continued to invest in our people by
offering to sponsor graduate and postgraduate
qualifications in both health science and business
administration through our partnership with
Auckland University of Technology. We have now
had 95 of our people graduate, and have a further 69
progressing through the qualifications.
Each year we hold an employee pulse survey
that tracks how our people feel about working at
ACC, and for assessing our employees’ levels of
engagement.
This year the overall employee engagement score,
calculated by the annual Gallup survey, was 4.06,
the same as in 2015/16. It is typically challenging
for organisations to maintain strong engagement
results, so this highlights that our people are
optimistic about the future.
The ratio of engaged to actively disengaged
employees increased to 7:1 in 2016/17, up from 6:1
the year before. This means for every seven team
members who are engaged, there’s only one who’s
disengaged, a pleasing result.
ANNUAL REPORT 2017
INCREASING CULTURAL AWARENESS
& CAPABILITY
Being able to connect with Māori, and promote
awareness of our support in Māori communities, is
a key focus for us. It’s imperative that we continue
to improve how we engage and partner with iwi
and Māori community organisations to co-design
effective services and injury prevention initiatives.
Our Whāia Te Tika (‘Pursue what is right’) strategy
describes how we are embedding Māori and cultural
considerations across our activities and building our
cultural capability.
Our
We have recently adopted four behaviours to shape performance
how we interact and engage as an organisation. this year
The first of these, ‘I am inclusive’ (‘He tangata
kotahitanga’), encourages all employees to
respect different perspectives and collaborate.
We are seeking to embed Te Reo Māori in our
communications and have supported employees
with language classes. Our recruitment processes
continue to be refined to attract Māori candidates,
and we are now seeking to appoint a Head of Māori
& Cultural Capability to lead our existing team
working in this area.
Where to from here?
In the coming year we will be reviewing, with our
people, our performance development cycle to
simplify the process and provide greater clarity,
involvement and support.
This will include having each employee’s
performance objectives and measures better
aligned with our priorities, and our future needs.
We will also be designing and delivering
business group changes that are aligned with the
Transformation programme’s future requirements
and the Shaping Our Future strategy.
43
Employer performance
Our activities under the seven elements of being a ‘good employer’ are set out below.

Element Our activities this year

N • Graduate and postgraduate qualifications offered in leadership/management.
W E • Targeted leadership courses offered for future leaders and new and
S
experienced managers.
• Manager and new senior leader induction and on-boarding programmes.
Leadership,
accountability • Developed a talent management toolkit aligned to the State Services
and culture Commission (SSC) framework.
• Enterprise leadership and Tika leader workshops embedded.
• Designed a new leadership approach aligned to the SSC Leadership Success
Profile.
• Developed and delivered a ‘leading through change’ suite of offerings.
• Partnerships with TupuToa and Workbridge will improve our diversity and
inclusion performance.
• Robust recruitment and selection processes are in place, including regional
assessment centres and candidate pipeline to ensure consistency.
• Use of broad assessment and selection tools to encourage diversity of age,
ethnicity, gender and disability.
Recruitment, selection
• Our partnership with Workbridge continues to improve our disability
and induction
initiatives.
• Implementing actions to support our diversity and inclusion approach.
• Performance development and remuneration framework in place.
• A review of our performance and development process has led to a launch of
more engaging tools and resources with clearer expectations for employees.
• Graduate and postgraduate qualifications offered in health science for case
Employee development,
management.
promotion and exit
• Comprehensive range of training programmes available to staff, provided by
both inhouse and by external providers.
• Our Tika programme continues to develop our culture and customer
experience.

• We have a policy that supports flexible working arrangements for our people.

• Parent rooms in some locations.
• Christchurch office opening provided insights into how our people will work in
Flexibility and the future.
work design

• Our people have access to a range of recognition options, including

transparent and equitable job evaluation practices.
• We support staff participation in contractual arrangements as part of
Remuneration, collective bargaining with the Public Service Association and the Association
recognition and of Salaried Medical Specialists.
conditions

44 ACCIDENT COMPENSATION CORPORATION

 Element Our activities this year
• ACC has a bullying and harassment policy.
• Employee Code of Conduct and relevant policies available at all times and
feedback encouraged from employees.
• We actively seek and encourage employee participation in all equal
Harassment and
employment opportunity-related matters, particularly as part of collective
bullying prevention
bargaining.
• Our commitment to providing staff with a safe workplace and supporting their
wellbeing is delivered through a range of support services, including:
Our
–– emotional strength and resilience programme to maximise employees’ performance
potential at work and in their personal lives this year
Safe and healthy
–– dedicated workplace wellness programme, including the provision of
environment
on-site health checks, hearing tests and flu vaccinations
–– Employee Assistance Programme
–– professional supervision support programme
–– ergonomic workstation assessments and sit/stand desks
–– reviews of all third-party sites
–– front office layout – building configuration assessments at all sites
–– health and safety/WorkSafe policy and training for all staff
–– developed further an interactive health and safety workshop called the
‘Reality room’ to help our people manage disruptive clients.

Full-time equivalent Headcount Ethnic profile*

3,397 3,502
European 70%
Asian 9%
Other 9%
ethnicity
Māori 8%
Pasifika 4%
peoples
3,397 permanent and temporary staff
2,066 direct frontline staff
564 frontline support staff 3,502 permanent and temporary staff Ethnic diversity remains stable

Age profile Disability profile* Gender profile

41.4
1.1%
Males 30%

Females 70%

Our proportion of employees with disabilities Women make up the majority of our workforce,
Average age 41.4 years is 1.1% (permanent staff) with 70% females compared with 30% males

* This information is voluntarily reported by staff.

ANNUAL REPORT 2017 45

The more things
change
We are a team of more than 3,500 people.

Like any team, we need to keep training, learning

and refining our skills and, in our case, services.

And while we need to invest in our infrastructure,

processes and technology, none of these can
progress without our people, so honing their skills is
paramount.
Our
This starts on day one for new employees. Lime and performance
this year
Sauce are foods to most people, but for our people,
they are the names of the online learning and
information tools they use from day one. They will
all have and develop individual and specialist skills,
but we lay down the markers of what is important
for us right up front.

But we also develop learning solutions to meet

our unique and ever-changing business needs. We
have a diverse workforce, from medical specialists
to call centre members, investment experts to case
managers, so the range of skills we need to improve
is, well, as diverse as our workforce.

What we are doing is making sure we can provide

the best services possible, so we invest in our
people and help 4.8 million other people – New
Zealanders.

47
Governance and
managing risk

49
Governance
ACC Board and governance framework
ACC is governed by a Board of up to eight non-executive members, each appointed by the Minister for ACC
for up to three years. The Minister can reappoint a Board member, or shorten their term.

The Board has the authority to exercise ACC’s statutory powers and perform its functions. The Board may
only act for the purpose of performing ACC’s statutory functions.

Board members are accountable to the Minister and also to ACC for the performance of their duties.

The Board’s governance role is largely governed by the provisions of the:

• Crown Entities Act 2004

• Accident Compensation Act 2001

• State Sector Act 1988

• Public Finance Act 1989

• Health and Safety at Work Act 2015.

These Acts include the following elements:

• maintaining appropriate relationships with the Minister, Parliament and the public

• ensuring ACC’s compliance with the law, ACC’s accountability documents and relevant Crown
expectations

• ensuring that ACC is a good employer and creates a supportive environment that promotes the highest
standards of safety and wellbeing, both for its employees and for the communities it serves

• setting strategic direction and developing policy

on the operation and implementation of the
legislation
Minister for ACC
• maintaining the financial viability and security of
Risk
ACC and its investments Assurance
and Audit
• appointing the Chief Executive of ACC Committee

• monitoring the performance of ACC and its Chief

Executive Investment
Committee
• exercising due diligence to ensure that ACC
complies with its obligations and primary duties. ACC BOARD
Governance and
All decisions relating to the operation of ACC must Remuneration
eam
ive

be made by, or under the authority of, the Board. Committee

cut

nt T
xe

The Board delegates to the Chief Executive the

fE

me

Shaping ie
Ch
ge

day-to-day management and leadership of ACC. In Our Future

a
an

Committee
particular, this includes matters relating to ACC’s
M

i ve
responsibilities as an employer. ecut
Ex

50 ACCIDENT COMPENSATION CORPORATION

ACC Board committees

RISK ASSURANCE AND AUDIT COMMITTEE

The Risk Assurance and Audit Committee assists the Board to fulfil its responsibilities for risk assurance and
audit reporting relating to ACC and its wholly owned subsidiary. The Board may delegate to the Committee
responsibilities associated with the sign-off and publication of the ACC Annual Report and financial
statements.

INVESTMENT COMMITTEE
The Board Investment Committee assists the Board to monitor ACC’s investment responsibilities. The
Board has delegated the Committee authority for investment decisions.

GOVERNANCE AND REMUNERATION COMMITTEE

The Governance and Remuneration Committee assists the Board to fulfil its responsibilities for Board and
executive succession planning, executive remuneration and monitoring ACC’s Talent Strategy.

SHAPING OUR FUTURE COMMITTEE

The Board established the Shaping Our Future Committee in 2015 to assist the Board by overseeing the
Shaping Our Future strategy and target operating model. The Board has delegated the Committee final
decision-making authority on programme implementation and IT component obligations under the
Transformation programme up to a maximum approved budget of $100 million whole-of-life-cost for
projects and $5 million whole-of-life-cost for consultants.
Governance and
managing risk
Remuneration
Board and external committee members are remunerated in accordance with the rates set by the
Government under the Cabinet Fees Framework (the Framework). On 23 May 2017, the Cabinet
Appointments and Honours Committee endorsed the Minister for ACC’s proposal to increase the ACC
Board’s fees from 1 June 2017. The fees were last increased on 1 July 2013.

These fees rely on the exemption clauses set out in the Framework. The external committee members’
remuneration is set under the grandparenting provisions of the Framework.

The Board Remuneration Committee reviews the performance and remuneration of the Chief Executive,
senior management and other critical roles at ACC.

ANNUAL REPORT 2017 51

BOARD AND SUB-COMMITTEE ATTENDANCE AND FEES1
Governance
Risk Assurance and Shaping
Board and Audit Investment Remuneration Our Future Annual
members ACC Board Committee Committee Committee Committee remuneration
Dame Paula
12/13 9/9 5/5 $98,204
Rebstock
Mr Trevor
13/13 9/9 5/5 $61,378
Janes
Prof Gregor
8/9 1/3 $32,667
Coster2
Prof Des
11/13 2/4 3/5 $49,102
Gorman
Ms Anita
12/13 4/4 6/6 $49,521
Mazzoleni
Ms Kristy
11/13 4/4 4/5 $49,102
McDonald QC
Mr James
12/13 8/9 6/6 $49,521
Miller
Ms Leona
0/1 $4,604
Murphy
Ms Gillian
13/13 9/9 1/1 6/6 $49,102
(Jill) Spooner
Mr Pat
9/9 $30,000
Duignan3
Mr David
7/7 $23,333
Hunt3
Mr Murray
5/6 $30,000
Jack3

1. Attendance at committee meetings is recorded for committee members only. If a Board member is not a member of a committee but attended a
meeting as an observer, their attendance has not been noted here.
2. Prof Coster’s term ended on 28 February 2017.
3. External committee members.

52 ACCIDENT COMPENSATION CORPORATION

Disclosure of interests
The Board has a conflict of interest process through which Board members are required to disclose their
interests on a monthly basis.

Section 68(6) of the Crown Entities Act 2004 requires the Board to disclose any interest to which a
permission relates in its Annual Report, together with a statement of who gave the permission, and any
conditions or amendments to, or revocation of, the permission. The following table sets out the details of
the interests and permission granted.

DISCLOSURES
Board member Interest Date of disclosure Details of permission
Professor Des Gorman Chair of the ACC October 2012 The Cabinet Appointments and
Toxicology Panel Honours Committee granted
permission for Professor Gorman to
continue to hold roles as both ACC
Board member and Chair of the ACC
Toxicology Panel.
Professor Gregor Coster Chair of the WorkSafe 1 December 2013 Professor Coster’s conflict is
New Zealand Board managed according to the Letter
of Expectations between ACC and
WorkSafe.
Mr James Miller Chair of NZX 21 May 2015 Mr Miller’s conflict is managed
according to the Letter of
Expectations between ACC and NZX.

Governance and
managing risk

ANNUAL REPORT 2017 53

The ACC Board
Dame Paula Rebstock, DNZM – Chair

APPOINTED CHAIR: SEPTEMBER 2012

CHAIR, GOVERNANCE AND REMUNERATION COMMMITTEE
Chair, Vulnerable Children’s Board, Insurance and Financial Services
Ombudsman Commission, Auckland District Health Board’s Finance, Risk and
Assurance Committee.

Deputy Chair, KiwiRail Holdings Ltd.

Member, Auckland District Health Board’s Human Resource Committee, University of Auckland
Business School Advisory Board, Synergia Limited Advisory Board, Auckland Transport Board, New
Zealand Defence Force Governance Board.

Lead reviewer, State Services Commission’s Performance Improvement Framework.

Trevor Janes – Deputy Chair

APPOINTED DEPUTY CHAIR: SEPTEMBER 2012

CHAIR, INVESTMENT COMMITTEE
Chair, KiwiRail Holdings Ltd, Abano Healthcare Ltd, Certus Solutions.

Member, New Zealand Markets Disciplinary Tribunal, Postal Network Access

Committee, International Development Commercial and Advisory Panel,
Tokelau International Investment Fund.

Professor Des Gorman, Ngāpuhi

APPOINTED: SEPTEMBER 2012

Professor of Medicine and Associate Dean, University of Auckland’s Faculty of
Medical Health and Sciences.

Executive Chair, Health Workforce New Zealand.

Member, National Health Board, Health Capital Investment Committee.

Anita Mazzoleni

APPOINTED: JULY 2014

CHAIR, RISK ASSURANCE AND AUDIT COMMITTEE
Chair, Ngā Maunga Whakahii o Kaipara Investments Ltd.

Member, Board of the Royal New Zealand College of General Practitioners.

54 ACCIDENT COMPENSATION CORPORATION

Kristy McDonald, QC

APPOINTED: SEPTEMBER 2012

Chair, Kiwifruit New Zealand.

Deputy Chair, Wairarapa Building Society, Electoral Commission.

James Miller

APPOINTED: MARCH 2013

CHAIR, SHAPING OUR FUTURE COMMITTEE
Chair, NZX Ltd.

Director, Mighty River Power, Auckland International Airport,

St Cuthbert’s College.

Leona Murphy

APPOINTED: JUNE 2017 Governance and

managing risk
Chair, Royal Brisbane and Women’s Hospital Foundation.

Director, Liberty Financial Ltd, Stone & Chalk Ltd.

Jill Spooner

APPOINTED: APRIL 2011

Member, Nominating Committee for the Guardians of the New Zealand
Superannuation Fund.

For further information about our Board members and ACC's Executive Team, go to
www.acc.co.nz/about-us/who-we-are/acc-board/

ANNUAL REPORT 2017 55

ACC corporate responsibility
The Board recognises that ACC’s activities and investments affect New Zealand communities, and therefore
it seeks to avoid activities that would be regarded as unethical by a substantial majority of the New Zealand
public. The ACC Board is guided by New Zealand and international laws, Treaty of Waitangi obligations,
global ethical practices, and its roles in the public sector and investment community. The Board commits to:

• conducting ACC’s investment and procurement activity in a lawful manner

• considering environmental, social and governance issues when making decisions on investment and/or
procurement activities

• providing overall guidance as to the types of activity that are considered unethical, and setting ACC’s
ethical investment policy to ensure that ACC meets its ethical investment objectives and fiduciary
responsibilities as a trustee in a manner that is transparent

• avoiding prejudice to New Zealand’s reputation as a responsible member of the world community.

Our Code of Conduct specifies business standards and ethical considerations, as well as the expectation
that all employees will promote the principles of equal opportunity in employment.

Whole-of-government directions
On 22 April 2014 the Minister of State Services and the Minister of Finance issued directions to apply whole-
of-government approaches to information communication technology (ICT), property and procurement. A
further direction was issued in 2016 for the New Zealand Business Number.
Whole-of-government area Date applies from
ICT 19 June 2014
Property 1 July 2014
Procurement 1 February 2015
New Zealand Business Number 1 January 2018

Subsidiary company
Shamrock Superannuation Limited (Shamrock), a wholly owned Crown entity subsidiary of ACC, was
established in 1991 to act as the corporate trustee for the ACC Superannuation Scheme. Shamrock’s role
is to act in the interests of members by being an independent supervisor and custodian of the Scheme’s
assets. Shamrock is bound by the ACC Superannuation Scheme’s Trust Deed.

Te Tiriti o Waitangi
E mōhio ana mātou ko te Tiriti o Waitangi te pepa whai tikanga o te kāwanatanga, i noho pūmau ai tātou
i te motu nei o Aotearoa. Ko ta mātou whāinga ki te tautoko i te Karauna ki ngā kaupapa whanaungatanga
o te Tiriti. Na tēnei ka taea te tuku a mātou ratonga hei whakamana ki a tōkeke ai ngā tukunga iho mo te
iwi Māori.

Treaty of Waitangi
We recognise that the Treaty of Waitangi is a founding document of government in New Zealand, and
established the country as a nation. We aim to support the Crown in its Treaty of Waitangi relationships and
deliver our services in ways that enable equitable outcomes for Māori.

56 ACCIDENT COMPENSATION CORPORATION

Managing risk
Our risk environment
ACC is exposed to a range of external risk factors including economic cycles, changing societal trends and
customer expectations, developments in treatment technologies, and threats to our people’s workplace
health and safety.

Managing risk facilitates the achievement of our objectives, operational effectiveness and efficiency,
protection of our people and assets, informed decision-making, and compliance with applicable laws and
regulations. We are committed to embedding risk management principles and practices into our culture,
governance and accountability structure, performance management, planning and reporting processes,
business transformation, and improvement processes.

Risk management is embedded in our culture and systems

All staff members take responsibility for identifying and managing risk. The Board sets the risk appetite
for ACC. Our risk framework outlines our commitment, responsibilities, processes and practices that
enable people to manage risk as part of our day-to-day decision-making and business practices. Our risk
management policy supports the achievement of our objectives, operational effectiveness and efficiency,
protection of people and assets, informed decision-making, and compliance with applicable laws and
regulations. Our risk management objectives aim to support us to achieve our business objectives by:

• developing an enterprise culture of risk awareness and continuous improvement

• educating and empowering staff to make informed decisions Governance and

managing risk
• maintaining ACC’s reputation and demonstrating its social responsibilities

• making risk management practical and accessible to enable the achievement of our business objectives.

Our risk framework, process, principles, definitions and vocabulary are aligned to ISO31000:2009 Risk
management: principles and guidelines. In May 2017 ACC decided to evolve from the current ‘three lines
of defence’ to the ‘five lines of assurance’ (5LOA) model. 5LOA extends beyond the three lines of defence
as it identifies and manages risks and ensures risk management is fully integrated in the normal course of
business activities, and is more actively undertaken by the Executive and the Board.

The 5LOA can be described as:

• Board – sets risk policy and appetite, identifies and assesses risks related to ACC’s most important
objectives, and reviews management reports on actions to treat these risks

• Chief Executive and Executive leaders – primary responsibility to identify and manage risks related to
ACC’s most important objectives

• Operational management – identify and manage risks within business groups, ensuring that risk
management is fully integrated into the normal course of business

• Specialist management – maintain relevant, up-to-date policies reflecting risk appetite, use processes
to ensure policies are complied with, and assist the Chief Executive and Executive leaders to assess and
report on risks

• Assurance Services – independent from the activities reviewed, and provides assurance to the Board on
residual risk status, and reports to the Board.

The Executive and the Board Risk Assurance and Audit Committee monitor and evaluate the effectiveness
of our risk management framework and internal control system. Assurance Services and external auditors
provide input to this evaluation.

ANNUAL REPORT 2017 57

Our risk strategy
ACC has recently reviewed and refreshed its risk strategy to further embed risk management and enhance
our risk maturity profile. By doing this, staff, the Executive and the Board are empowered to make
better-informed decisions in support of ACC’s organisational objectives.

This year we have delivered on our risk strategy as outlined in the table below.
Initiative Management response
Enterprise risk operating model The operating model for the Risk & Compliance function is now
fully in place. It consists of a centralised Risk & Compliance
team, working with the wider network of risk and compliance
professionals embedded in business groups to build comprehensive
and consistent risk management practices.
Risk appetite The Executive and Board are reviewing our risk appetite to help
guide how we invest, plan and make day-to-day decisions.
Compliance We have a process to assess compliance against our legal
obligations, and this is periodically reported to the Board.

Priority risks
We adopt a structured approach to understanding and managing risks through regular Executive and Board
engagement. The Executive has prioritised the top-level risks, and our Board regularly reviews the most
significant risks faced by ACC. The quality and impact of enterprise risk reporting has improved, particularly
at the Board and Executive level. Specific focus is placed on the risks that are of most concern, the actions
management has taken or is planning to take, and any further gaps that need addressing. This has
improved the risk conversation at the Executive and Board levels, and ongoing improvements will continue
to ensure reporting remains relevant and insightful. The following seven risks are the highest-priority risks
at the present time.
Risk Management response
Delivering the enterprise change Established a dedicated role of Chief Change Integration Officer to
Risk that we do not deliver strengthen our understanding of, and control over, all the planned
the enterprise change due to enterprise change, and lead the effort to ensure the changes we are
misalignment of programmes or implementing deliver the expected benefits and outcomes.
failure to create an appropriate Continue our plan to lift change management capability across ACC,
culture and maintain an enterprise view of change and prioritisation.
Health and safety Monitoring is carried out through our 5LOA assurance model.
Risk that we fail to take reasonable Enhance current proactive efforts to promote staff health, safety
and practicable action to prevent and wellbeing, such as recognising and rewarding safe behaviours.
harm to employees and third parties Appointed a senior staff member to manage third-party health and
safety risk.
Outstanding claims liability (OCL) Strengthen our engagement with providers, and contract for
Risk that we fail to understand and/ outcomes that will lead to lower overall costs.
or manage adequately the drivers of Increased focus on key controllable drivers of OCL changes, with
the OCL that are within our control timely identification and investigation of potential issues and
or influence opportunities.
Customer expectations Develop a performance scorecard to better inform how we align
Risk that changing client customer expectations, financial sustainability and the OCL.
expectations could lead to Develop a long-term strategy for ACC’s role in the broader health
higher claim costs. Additionally, and social system.
the risk that ACC fails to adapt
sustainably to changing service level
expectations

58 ACCIDENT COMPENSATION CORPORATION

Risk
Cyber security
Our systems and information are
vulnerable to attack
External financial shock
Events outside of ACC’s
assumptions with a major financial
impact on investments
Protecting customer information
We fail to protect customer
information
ANNUAL REPORT 2017
Management response
Our Information Security Plan is being refreshed to reflect our
activities to 2020.
Develop a cyber security policy including sub-policies.
Develop training modules and an awareness campaign to prepare
staff to detect and respond effectively to cyber threats.
Fully assess and document cyber risk as it relates to the Investment
Office, including mitigations for internal and third-party threats.
Conduct an assurance review of the management of cyber risk in the
Investment Office.
Our investment policies and strategies are designed to reduce the
asset/liability mismatch.
We periodically subject our asset allocation and other strategies to
external review as a check on our assumptions.
We are developing more formal mechanisms to monitor and
evaluate the ongoing creditworthiness of the Australasian banking
system and custodians.
Continue to implement the initiatives in the Privacy Maturity Plan.
Strengthen second-line privacy activity as part of embedding a new
organisational structure.
Privacy by design in Transformation programme.
Dedicated privacy person allocated to the Transformation
programme.
Governance and
managing risk
59
Investments report

61
Why ACC invests
ACC holds investments to meet the future costs of injuries that have already occurred. ACC is now fully
funded (other than for some pre-2001 injuries that are funded by the Government), which means that our
actuaries believe we hold sufficient investment funds to pay all the future costs of the injuries that have
already occurred. The actuaries’ estimate of the level of funding required depends on assumptions about
the future returns that ACC will earn from its investments. We aim to achieve returns that are at least as
high as the actuaries have assumed.

On an ongoing basis, we fully fund all new injuries by collecting sufficient levies to provide for all the
immediate and future costs of those injuries. For our levied accounts, because ACC is now fully funded, we
no longer need to collect further levies to pay for the cost of injuries that occurred in the past.

For most future years, we expect that the costs of running the Scheme and dealing with injuries will be just
slightly higher than the levies we collect to pay for the future costs of newly incurred injuries. In practice,
ACC tries to avoid unnecessary costs by netting off fund inflows and outflows, and will therefore typically
take only a small percentage out of the investment portfolio in most years.

Overview of the past year

Global equity markets were generally strong in the past year, producing gross returns of almost 20% (when
measured in local currency terms). The Japanese market was particularly strong, returning more than 30%.
During the year equity markets generally favoured stocks that were cheap on standard valuation metrics,
while lower-risk economically-resilient stocks fell out of favour. The New Zealand equity market did not
perform quite as strongly as most other equity markets.

The New Zealand dollar rose against the US dollar, the British pound and the yen during the year, but it
was little changed in relation to the Australian dollar and the Euro. The overall strength of the New Zealand
dollar reduced the New Zealand dollar returns from holding unhedged investments in offshore markets.

New Zealand long-term government bond yields rose by about 0.6% in the course of the year. Bond yields
rose to an even greater extent in most other developed countries. Rising bond yields lead to existing bonds
being valued at lower prices, which adversely affects short-term investment performance. Offsetting this
adverse effect on short-term investment performance, rising bond yields also reduced the actuarial value of
ACC’s outstanding claims liabilities.1

Yields on corporate bonds did not rise by as much as yields on government bonds, which meant that returns
from longer-term corporate bonds generally outperformed returns from government bonds of similar
duration.

1 The claims liabilities are reduced by higher interest rates when expressed in terms of the amount ACC needs to hold in present day dollars to
be able to meet the future compensation and rehabilitation costs of injuries that have already occurred (ie the actuarial value of outstanding
claims liabilities). Higher interest rates imply an expectation of higher future investment income, which means that ACC doesn’t have to invest
so much money today in order to provide for those costs that we expect to be funding several years in the future.

62 ACCIDENT COMPENSATION CORPORATION

Investment returns for 2016/17
ACC’s reserves portfolios delivered a weighted average return of 5.80% (net 5.70%), outperforming our
market-based benchmarks by 1.49%. The net outperformance of our benchmarks was 1.35% after adjusting
for investment costs and taxes.2 This was a pleasing outperformance of our benchmarks.

The return was higher than the long-run return assumptions implicit in the valuation of our claims liability.
This was a particularly pleasing result in the context of rising bond yields, which shaved $3.45 billion off
ACC’s outstanding claims liability (OCL). Because we build an investment portfolio that is designed to
protect ACC against the impacts that a decline in interest rates would have on our claims liabilities, we
accept that rises in interest rates will reduce near-term investment returns, such that we would normally
expect investment returns to be very low in years when bond yields rise by as much as 0.65%.

This outperformance of ACC’s investment benchmarks was the combined result of several contributing
factors:

• ACC’s bond portfolio outperformed its benchmarks, aided by a narrowing in the yield spreads between
corporate bonds and government bonds

• all of ACC’s internally managed listed equity portfolios outperformed their benchmarks

• the global bond and global equity portfolios that are managed on ACC’s behalf by external fund managers
also generally outperformed their benchmarks

• ACC’s actual allocations between investment markets performed better over the year than the neutral
allocation mix established by our asset allocation benchmarks

• ACC’s direct property investments significantly outperformed public market benchmarks, with the total
return of 10.09% having been boosted by independent end-of-year valuations.

Importantly, there were very few adverse items detracting from ACC’s investment outperformance. Two
externally managed Australian equity portfolios did, however, underperform their benchmarks.

We think about returns on a risk-adjusted basis, as we believe that we should require a higher return if we
are taking greater-than-normal risk, but should also be willing to accept a lower return if we are taking
lower-than-normal risk. In our assessment, ACC’s reserves portfolios took marginally less risk than the
benchmark position for most of 2016/17, principally due to a decision to hold a lower-than-benchmark
allocation to equity markets, and the reserves portfolios therefore achieved significant outperformance on a
risk-adjusted basis.

Investments
report

2 Specifically, the reported return of 5.80% is expressed after deducting some direct costs such as broker commissions and property expenses, but
is calculated prior to the deduction of 0.14% of other investment-related costs such as investment staff remuneration and fees paid to external
managers. Conversely, ACC’s reported investment return is affected by the deduction of 0.03% of offshore withholding taxes paid by ACC,
whereas our benchmarks are calculated on the basis of gross indices, which make no deduction for withholding taxes. Hence, to measure our
relative performance on a net-of-cost basis that is fully adjusted for taxes, we must subtract the 0.14%, and add back the 0.03%.

ANNUAL REPORT 2017 63

 Annual portfolio returns
2016/17 financial year Average past 3 years
$M Portfolio Benchmark Portfolio Benchmark
Cash portfolio 277 2.6% 2.2% 3.3% 2.9%
Reserves portfolios by asset class:
Reserves cash 1,963 2.5% 2.0% 3.2% 2.8%
New Zealand index-linked bonds 8,322 –0.4% –0.5% 6.0% 5.7%
New Zealand bonds 12,134 0.7% –1.3% 7.8% 7.1%
New Zealand equity 2,813 13.2% 11.0% 16.2% 14.8%
New Zealand private equity1 461 9.8% 12.2%
New Zealand and Australian 1,504 9.2% 5.2% 14.9% 14.5%
property & infrastructure
Australian equity 1,426 10.0% 11.8% 8.8% 8.3%
Global bonds 1,550 1.7% –0.5% 6.6% 5.4%
Global equity 6,224 17.0% 16.2% 13.2% 11.5%
Interest rate derivative overlay2 33 –0.2% –0.3% 0.4% 0.3%
Equity future overlay1, 2 72 0.0% 0.3%
Bond future overlay1, 2 2 0.0%
Foreign currency overlay2, 3 124 0.7% 0.5%
Total reserves 36,627 5.8% 4.3% 10.2% 9.2%
By funding account:
Earners’ 9,145 6.3% 4.8% 10.0% 9.0%
Motor Vehicle 11,236 5.0% 3.5% 10.1% 9.3%
Work 9,040 5.6% 4.1% 9.8% 8.9%
Non-Earners’ 3,412 7.1% 5.8% 11.1% 10.1%
Treatment Injury 3,794 6.3% 4.8% 10.7% 9.8%
Total reserves 36,627 5.8% 4.3% 10.2% 9.2%

1. Benchmark returns are not shown, as there is no benchmark allocation for these asset classes.
Please note: For the purpose of this table, traded investments are valued at last sale price. The investments recorded in the financial statements
are measured at fair value under PBE IPSAS 29 requirements.
This table shows investment returns after the deduction of some direct costs such as commissions (brokerage) and costs directly relating to
the management of specific property investments. However, returns are shown prior to the deduction of other investment management costs
of $50.6 million, including fees paid to external fund managers and the remuneration of ACC’s investment staff, which detracted 0.14% from
investment returns in 2016/17. ACC’s investment returns are shown net of tax, whereas the benchmarks make no allowance for tax. However, as
ACC is not liable for tax in New Zealand, offshore withholding taxes paid by ACC reduced the calculated return by 0.03%.
2. The percentages shown in the ‘Portfolio’ columns show the contributions that these overlays made to the aggregate reserves portfolio return,
rather than as returns on the funds physically invested in these derivative strategies. The percentages shown in the ‘benchmark’ columns
show the contribution that a benchmark-neutral application of these strategies would have made to the benchmark for the aggregate
reserves portfolio.
3. Inception date is 1 April 2015. The benchmark is the hedge return represented by the difference between the hedged and unhedged total
reserves returns.

64 ACCIDENT COMPENSATION CORPORATION

Future investment returns
The rise in New Zealand bond yields reduced the value of our bond investments, and this capital loss
reduced our investment return in the past year. However, the rise in bond yields increases the returns that
we can anticipate from bonds in the future. This is reflected in a higher discount rate, which has contributed
to a reduction in the valuation of our outstanding claims liability. Despite the increase in the past year, bond
yields remained much lower than they have been for most of the past 50 years.

Equity markets have risen to valuations from which we believe it is unlikely that equities could continue to
deliver returns in the next several years that are as strong as investors have experienced in the past eight
years. Nonetheless, ACC continues to hold significant investments in equity markets because low bond
yields mean that the alternative of investing in bonds is unappealing, and because equity investments may
provide diversification against some risks that could affect bond investments.

Objectives and risks

We manage our investments with the objective of obtaining the best possible balance of return and risk.
Higher investment income over time would result in lower levies, but we need to balance our pursuit of
higher returns with an objective of limiting downside risks, as a poor financial outcome could cause a need
to increase levy rates.

We think about risk from the perspective of ACC’s overall financial position rather than just focusing on the
investment portfolios in isolation. This perspective on risk has both long-term and short-term aspects:

• the long-term perspective on risk is that ACC could have insufficient funds to pay the future costs that its
reserves portfolios were intended to cover, either because long-term investment returns could prove to be
lower than expected, or because inflation could prove to be higher than expected. When ACC puts funds
aside to meet future costs, our actuaries use government bond yields to derive an estimate of the returns
that we might expect ACC to earn on those funds

• the short-term perspective on risk is that we are keen to avoid large increases in levy rates that could
be required if ACC strayed significantly ‘off-course’ in terms of its ability to meet future obligations.
Specifically, we measure whether we are ‘on-course’ for funding our future claim obligations by
comparing the value of ACC’s assets (mainly investment assets) to the value of our claims liabilities
(which we must value at risk-free discount rates, under New Zealand accounting standards), for the levied
Accounts that have policies of full funding.

Both perspectives encourage us to minimise the risk of large, adverse movements in the gap between the
assessed value of claims liabilities and the market value of ACC’s investment portfolios. This means that we
need to think not only about financial risks that could affect the value of ACC’s investment portfolios, but
also about risks that could affect the actuarial value of ACC’s claims liabilities. Some of the key risks that
could adversely affect the balance of ACC’s assets and liabilities, and therefore levy rates, are listed below. Investments
report
• Poor returns from equity markets. Weak equity markets would be likely to result in a reduction in the
value of ACC’s investment portfolios without a corresponding reduction in the value of our claims
liabilities.

• Declines in real long-term interest rates.3 If interest rates declined without a corresponding decrease
in the inflation outlook, this would lead to an increase in the assessed value of our claims liability, and
a decrease in our long-term expectations for investment returns. We aim to offset this risk by holding
investment assets that tend to rise in value when real interest rates decline. However, ACC’s investment
portfolios only provide a partial offset to this risk.

• An increase in the inflation outlook. All of our claims liabilities are sensitive to inflation, but a significant
portion of ACC’s fixed interest investments do not provide protection against inflation. If the inflation
outlook increases and bond yields show a corresponding increase, this would have an adverse impact

3 ‘Real’ long-term interest rates refer to ‘nominal’ long-term interest rates minus the anticipated impacts of inflation on investment returns.

ANNUAL REPORT 2017 65

 on the value of ACC’s fixed interest portfolios. Conversely, if the inflation outlook increased but nominal
bond yields did not increase, this would lead to a significant rise in the assessed value of our outstanding
claims liabilities.

• Poor investment returns for reasons that are unrelated to either claims liabilities or the general
performance of equity markets. These could occur due to widespread credit defaults or a strengthening
in the New Zealand dollar against foreign currencies, or if our investment performance was worse than
market benchmarks.

ACC’s liabilities can also be significantly affected by actuarial factors that have little to do with interest
rates, the general level of inflation, or other clearly identifiable economic variables. For example, estimates
of ACC’s future costs could increase as a result of new, more expensive ways of treating injuries. There is
little that investment policy can do to offset these non-economic actuarial risks. The presence of these non-
economic risks means that there is a natural limit to how far the investment policy can be used to reduce
uncertainty about ACC’s future funding position.

Our objective of protecting ACC against declines in long-term interest rates and increases in the inflation
outlook means that we tend to look favourably at long-term investments that we can expect to deliver
relatively certain New Zealand dollar cash flows that are protected against inflation.

Allocation of funds
Our allocation of funds among different investment markets is directly linked to the objectives and risks
discussed in the preceding section.

While it is not possible to offset fully all the long-term risks, we allocate funds among investment markets
and set investment policy with an aim of keeping each of these risks at a manageable level. We also need to
strike an appropriate balance between reducing these risks and enhancing returns.

The way we think about risk has a significant influence on how we allocate funds between markets. We tend
to invest a relatively large percentage of ACC’s funds in New Zealand investment markets, particularly fixed
interest instruments with a long time to maturity. The main reasons for this are:

• New Zealand investment markets match our claims liabilities better than offshore markets, as our claims
liabilities are sensitive to real New Zealand bond yields

• the internal management costs of ACC’s New Zealand investments are much lower than the external
management costs of offshore investments.

Consequently, ACC makes a significant contribution to New Zealand’s capital markets, and is one of the
largest investors in New Zealand companies. We own about 2.5% of the market capitalisation of the New
Zealand sharemarket, which equates to 3.6% of the available shares if we exclude strategic shareholding
blocks (such as the Government’s shares in the gen-tailers) from the calculation.

ACC holds an even greater proportion of New Zealand dollar investment-grade bonds. For example, ACC
owns 56% of the inflation-indexed bonds that have been issued by the New Zealand Government, and 5.1%
of the regular (not inflation-indexed) New Zealand Government bonds.

Each of ACC’s Accounts splits its investment funds between an investment in ACC’s short-term cash
portfolio, used to meet near-term expenditure requirements, and its own longer-term reserves portfolio, set
aside to meet the future costs of existing claims.

The investment allocations of the reserves portfolios differ by Account, reflecting different funding
positions, different projected growth rates, and the different claims liability characteristics of the various
ACC Accounts. Generally, rapidly growing Accounts have a higher percentage of their assets invested in
equities than those Accounts that have slower projected growth in investment assets.

As ACC’s Accounts have investment portfolios that are several times as large as their annual levy income,
we must limit these Accounts’ exposure to equity markets to avoid investment results causing excessive
variability in levy rates. In the past eight years, we have reduced ACC’s overall weighting in equity markets
66 ACCIDENT COMPENSATION CORPORATION
by more than would have otherwise been the case, because the aggregate reserves portfolio has grown
faster than ACC’s outstanding claims liability.

The Board’s Investment Committee regularly reviews long-term benchmark investment allocations for each
Account’s reserves portfolio, based on the advice of the Investment Unit. These benchmark allocations
take account of both our long-term expectations for the returns from the various investment markets and
the need to limit the Accounts’ various risk exposures. Setting benchmark asset allocation involves striking
an appropriate balance between the objective of enhancing returns and the objective of reducing risk. ACC
aims to maintain a high level of consistency in how it evaluates this trade-off from one year to the next, as
an inconsistent approach over time could lead to worse long-term investment results.

Our investment staff may make short- or medium-term decisions to vary from the benchmark allocations,
within risk control parameters set by the Investment Committee.
Composition of aggregate reserves

New Zealand bonds 33% New Zealand equity 8%

New Zealand private equity* 1% New Zealand and Australian property and infrastructure 4%
Australian equity* 4% Global bonds* 5%
Global equity* 15% Other <1%
New Zealand index-linked bonds 23% Reserves cash 6%
Foreign currency contracts overlay <1%

* The global equity, Australian equity and global bonds slices include effective exposure to equity and bond markets obtained
through futures contracts. However, this pie chart has not been adjusted for the effective exposure to bond markets arising
from the use of interest rate derivatives as an asset allocation overlay. The benchmark effective exposure of interest rate
derivatives represented 5% of total reserves at the end of June 2017.

How ACC’s investments are managed Investments

report
Practically, we allocate funds between distinct investment portfolios that are focused on different
investment markets. We aim to add value in how we allocate funds between different investment markets,
and in how the portfolios perform within each investment market.

Our internal Investment Unit directly manages almost all of ACC’s investments in New Zealand investment
markets, the majority of ACC’s investments in Australia, and about one-fifth of ACC’s investment in global
equities. The manager of each portfolio aims to identify and take advantage of situations where some
sectors or securities within their market are being mispriced in relation to their risks and prospects. We aim
for consistent outperformance, and seek to avoid exposing ACC to an above-average degree of market risk.

Most of ACC’s foreign assets, and a significant proportion of ACC’s private equity investments are
outsourced to external fund management companies, as this provides more diversity to ACC’s portfolio,
and allows our internal funds management team to focus on those areas where they have the greatest
edge. However, we balance this diversification with the fact that external management is significantly more
expensive for ACC than internal portfolio management. Over time, ACC has achieved strong results from
both internal and external funds management.
ANNUAL REPORT 2017 67
Overlay strategies
Our Investment Unit also actively uses overlay strategies to manage ACC’s exposure to different
investment markets. These are listed below.

• A New Zealand interest rate derivatives overlay to obtain greater protection against declines in long-term
interest rates than could easily be achieved through physical allocation alone. We want to ensure that
ACC’s investment returns will be strong in situations where long-term interest rates decline, as declines
in long-term interest rates would result in increases in the assessed value of ACC’s claims liabilities.

• We buy or sell global equity futures to readjust ACC’s overall exposure to equity markets on a daily basis,
as this is transactionally cheaper than buying or selling equities. However, when we make a long-term
decision to allocate funds in or out of equity markets, we ultimately implement this through the purchase
or sale of physical equities.

• We use foreign exchange forwards and cross-currency interest rate swaps to manage ACC’s foreign
exchange exposures. ACC’s benchmarks specify a neutral level of unhedged foreign exchange exposure,
which is significant but is less than our total allocation to overseas markets. Our Investment Unit may
vary the extent to which ACC uses currency hedging (within predefined limits) such that ACC may have
net unhedged foreign exchange exposures that are either higher or lower than this neutral position.

• We have also recently started using global bond futures to adjust our overall exposure to interest rates.
This can be transactionally cheaper than either allocating funds in or out of bond portfolios or making
changes to our New Zealand interest rate derivative position.

We are conscious that ACC incurs credit exposure to counterparties when undertaking derivative
transactions such as foreign exchange forwards or interest rate swaps. We aim to only use derivatives when
there is no equally good alternative, or when the alternatives would be significantly more expensive for
ACC. We also have limits and controls governing derivative use and credit exposures.

Long-term investment performance

ACC has now been measuring the performance of its investment portfolios on a market-value basis for
25 years.

• The New Zealand bond portfolio has outperformed its benchmark in 23 of the past 25 years.

• The combined New Zealand equity portfolio has outperformed its benchmarks in 22 of the past 25 years.

• ACC’s overall reserves portfolio has outperformed its composite benchmarks for 24 of the past 25 years,
including 22 consecutive years of outperformance from July 1995 to June 2017, but note that in one of these
22 years ACC only performed in line with benchmark after allowing for investment costs.

We are not aware of any other large diversified fund anywhere in the world that can match the consistency
of ACC’s reserves portfolio’s outperformance during this sometimes turbulent period for investment
markets.

This consistency has helped ACC’s reserves portfolio to achieve compound returns of 10% per annum for the
past 25 years, which is higher than the returns that ACC could have achieved by passively investing in any
significant investment market, or any fixed combination of those markets, in that 25-year period. Through
the returns that ACC has achieved, every $100 that ACC invested 25 years ago has effectively grown to be
worth $1,091 today. However, we do not expect returns to be so strong in the future.

68 ACCIDENT COMPENSATION CORPORATION

 ACC’s unusually strong investment performance in the past two decades may be partly explained by the
fact that ACC’s internal management avoids many of the distortions cause by poorly aligned objectives that
are inherent in traditional models of funds management. Further, ACC has been able to retain a stable and
experienced funds management team with very low staff turnover, and the team has generally managed
to focus on making investments where they believed they understood something that other market
participants did not, while avoiding large risk exposures to investments where ACC’s understanding was no
greater than that of other investors.

ACC 25-year reserves portfolio returns

1,250
Value of $100 invested in June 1992

1,050

850

650

450

250

50
Jun 92

Jun 93

Jun 94
Jun 95
Jun 96
Jun 97

Jun 98

Jun 99
Jun 00

Jun 01
Jun 02
Jun 03

Jun 04
Jun 05
Jun 06
Jun 07

Jun 08

Jun 09
Jun 10
Jun 11
Jun 12
Jun 13

Jun 14
Jun 15
Jun 16
Jun 17
25-year ACC Reserves return = 10.03% pa
25-year ACC Benchmark return = 8.56% pa

ACC 25-year New Zealand equity returns

2,550
Value of $100 invested in June 1992

2,050

1,550

1,050

550

Investments
50
report
Jun 92

Jun 93

Jun 94
Jun 95
Jun 96
Jun 97

Jun 98

Jun 99
Jun 00

Jun 01
Jun 02
Jun 03

Jun 04
Jun 05
Jun 06
Jun 07

Jun 08

Jun 09
Jun 10
Jun 11
Jun 12
Jun 13

Jun 14
Jun 15
Jun 16
Jun 17

25-year ACC New Zealand equity asset class return = 13.33% pa

25-year ACC New Zealand equity benchmark return = 9.07% pa

ANNUAL REPORT 2017 69

 ACC 25-year New Zealand bond returns
750

Value of $100 invested in June 1992 650

550

450

350

250

150

50
Jun 92

Jun 93

Jun 94
Jun 95
Jun 96
Jun 97

Jun 98

Jun 99
Jun 00

Jun 01
Jun 02
Jun 03

Jun 04
Jun 05
Jun 06
Jun 07

Jun 08

Jun 09
Jun 10
Jun 11
Jun 12
Jun 13

Jun 14
Jun 15
Jun 16
Jun 17
25-year ACC New Zealand bond asset class return = 8.09% pa
25-year ACC New Zealand bond benchmark return = 7.29% pa

ACC 23-year 5-month global equity returns

650
Value of $100 invested in June 1992

550

450

350

250

150

50
Jun 92

Jun 93

Jun 94
Jun 95
Jun 96
Jun 97

Jun 98

Jun 99
Jun 00

Jun 01
Jun 02
Jun 03

Jun 04
Jun 05
Jun 06
Jun 07

Jun 08

Jun 09
Jun 10
Jun 11
Jun 12
Jun 13

Jun 14
Jun 15
Jun 16
Jun 17
25-year ACC global equity asset class return = 7.77% pa
25-year ACC global equity benchmark return = 6.22% pa
Note: Global equity returns are shown on a partially hedged basis up to 30 June 2001, and unhedged after this date.
The period of 23 years and five months reflects the full period in which ACC has invested in global equities.

ACC financial year returns against benchmark

25

20

15
Annual returns %

10

–5
1993

1994

1995

1996
1997

1998
1999

2000
2001

2002

2003

2004

2005
2006

2007
2008

2009

2010

2011
2012

2013

2014
2015

2016
2017

ACC reserves Reserves Benchmark

70 ACCIDENT COMPENSATION CORPORATION

Growth in ACC’s investment portfolios
ACC’s reserves portfolios increased in value by 5.6% from $34.7 billion last year to $36.6 billion at the end of
June 2017. All of this growth came from investment returns. ACC withdrew slightly more money from this
portfolio than it contributed during the 2016/17 year.

Most of ACC’s Accounts are fully funded, which has resulted in levy rates being dropped to about the rate of
Scheme expenditure, such that future growth in ACC’s investment portfolios should effectively be funded
entirely out of investment income.

Our best guess is that future investment returns will average about 5% per annum (about half what they
have been in the past), and our best guess is that ACC will need to grow its reserves portfolios by about
4.0% per annum in order to keep pace with growth in ACC’s outstanding claims liabilities, due to factors
such as inflation and increasing population. Given the two-sided risks around both of these forecasts, there
remains a significant probability that future investment income could be insufficient to match the long-term
growth in ACC’s claims liabilities.

Total size of ACC reserves portfolio

40

35

30

25
$B

20

15

10

0
Jun 92

Jun 93
Jun 94
Jun 95

Jun 96
Jun 97

Jun 98
Jun 99

Jun 00

Jun 01
Jun 02

Jun 03

Jun 04
Jun 05

Jun 06
Jun 07

Jun 08
Jun 09

Jun 10
Jun 11

Jun 12
Jun 13

Jun 14

Jun 15
Jun 16

Jun 17

Investments
report

Investment benchmarks
Like most other fund managers, we compare the make-up and performance of ACC’s investment portfolios
to market-based benchmark indices. These benchmarks indicate how we would expect to invest ACC’s
funds if we did not have any views on the likely relative performance of different securities within a market.
Accordingly, it is important that the benchmarks represent sensible starting points for the construction of
portfolios that meet ACC’s needs. In many cases a commonly used market benchmark is appropriate for
ACC, but in other cases we manage ACC’s portfolios against a different benchmark that better reflects our
objectives or market focus. For example, the high interest rate sensitivity of our claims liabilities means that
ACC needs a highly interest-rate-sensitive bond portfolio, so we manage the New Zealand bond portfolio
against a benchmark index that only includes bonds with more than five years remaining to maturity.

As well as indicating a neutral starting point for the management of our portfolios, benchmark indices are
useful for assessing portfolio performance, as they allow us to differentiate the elements of a portfolio’s

ANNUAL REPORT 2017 71

returns that are due to generalised market conditions from the relative value that has been added or
subtracted in the management of that portfolio.

The returns achieved on the reserves portfolios belonging to ACC’s various Accounts are measured against
composite benchmarks that represent a weighted composite of the benchmarks for the various investment
markets in which those reserves portfolios may invest. The benchmark weightings used for calculating the
reserves portfolios’ benchmarks are reviewed twice a year, and are intended to reflect a sensible starting
point for the allocation of each Account’s funds based on the financial position of the Accounts and the
pricing of investment markets at the time of each review. Benchmark allocations between investment
markets have changed in most of the past 25 years.

It could be argued that changes in ACC’s composite benchmarks over time make it more difficult to measure
performance than would be the case if ACC had always compared itself to the same unchanging ‘reference
portfolio’, an approach that is taken by many other funds. However, ACC encourages its investment team
to think about allocating between markets based on the factors that are relevant today, and to avoid
having allocation decisions distorted by a reference portfolio based on factors that may have changed since
the reference portfolio was fixed. This has been particularly important for ACC, as large changes in ACC’s
funding position in the past decade have had a significant impact on the appropriate benchmarks for ACC’s
investment activities. For these reasons, we have elected not to adopt a fixed reference portfolio.

We believe that our changing asset allocation benchmarks have represented a tougher hurdle for measuring
performance than any fixed reference portfolio that we might have adopted in the past. This is supported
by the fact that the 25-year returns from ACC’s reserves portfolio benchmarks have been stronger than the
returns that would have been achieved by passively investing in New Zealand cash, New Zealand bonds,
global bonds, or global equities in the 25-year period.4

Probability of negative returns

A typical risk analysis based on the past performance of investment markets and the current composition
of ACC’s portfolio would suggest that each year there is roughly a one-in-six chance of incurring negative
returns. In reality, we have had just one financial year of negative returns in the past 25 years (2007/08,
when the reserves portfolio returned -0.8%).

Statistical analysis based on current interest levels and the variability of investment markets in the past two
decades suggests that in any given year there is less than a 0.5% probability that ACC will record returns of
-10% or worse. However, we believe that it is wise to assume that the probability of negative returns of this
magnitude could be higher than suggested by this analysis.

There are two primary factors that contribute to the risk of negative returns:

• a rise in bond yields of about 0.9% could result in ACC recording negative investment returns. However,
ACC’s overall funding position would improve as a result of a rise in bond yields, as the OCL would
decrease by an even greater amount than the decline in investment income

• based on current policy, ACC’s Accounts will typically have an average of 32% of their reserves funds
effectively invested in equity markets. This means that, all else being constant, a generalised decline in
foreign and domestic equity markets of approximately 9% or more would tend to result in ACC recording
negative overall investment returns.

4 With the benefit of hindsight, we can calculate that an allocation of close to 100% of the portfolio to New Zealand equities would have produced
higher returns than ACC’s actual benchmarks. However, such an allocation would not have suited ACC’s risk tolerance and would not have
been practical as ACC could not invest 100% of its funds in the New Zealand equity market without exceeding takeover thresholds.

72 ACCIDENT COMPENSATION CORPORATION

Diversification/size of largest investments
ACC’s investments in individual companies and securities are generally too small to endanger total
investment returns significantly in a single financial year. Excluding one investment in a diversified global
equity fund, ACC holds just three equity investments that individually represent more than 0.5% of the
reserves portfolio (ie $183.2 million).

Note that in the table below, the largest holding is now an unlisted investment, in Kiwi Group Holdings, the
parent company of Kiwibank. ACC and the New Zealand Superannuation Fund jointly made an investment
in Kiwi Group Holdings in October 2016, and contributed further capital to Kiwi Group Holdings in April 2017.
ACC views Kiwi Group Holdings as a long-term investment.

Aside from the investment in Kiwi Group Holdings, and ACC’s equity investments in Wellington Gateway
Partnership (which is building the Transmission Gully expressway north of Wellington) and NX2 (which is
building the Puhoi to Warkworth motorway), all of ACC’s top-50 equity investments are held in companies
or trusts that are listed on public stock exchanges, which provides us with current market values of these
investments.

The only individual credit exposures representing more than 1% of the reserves portfolio (ie $366 million) are
to the New Zealand Government, the Local Government Funding Agency, four banking groups with strong
credit ratings and New Zealand banking licences, the Auckland Council and a AAA-rated development bank
guaranteed by the German government.

None of ACC’s direct property investments represents more than 0.5% of the reserves portfolio. ACC’s
largest property investment is a Wiri property leased to The Warehouse for its North Island distribution
centre. This property is valued at $160 million.

Investments
report

ANNUAL REPORT 2017 73

 ACC’s
investment
value ($NZM,
ACC’s 50 largest equity investments market value)
Kiwi Group Holdings (parent company of Kiwibank) 285.3*
Auckland International Airport 197.9
Fisher & Paykel Healthcare 187.5
Contact Energy 174.2
Spark New Zealand 172.3
Kiwi Property Group 156.9
Fletcher Building 154.0
Meridian Energy 134.0
Infratil 133.4
Z Energy 129.5
Goodman Property Trust 105.6
The a2 Milk Company 104.0
Alphabet Inc. 101.2
Ryman Healthcare 94.6
Mainfreight 81.8
Chorus 80.8
SKYCITY Entertainment Group 80.5
Wellington Gateway Partnership (Transmission Gully public-private partnership (PPP)) 80.3*
Precinct Properties New Zealand 76.0
Xero 70.0
Mercury NZ 69.5
Microsoft Corporation 68.7
CSL 66.1
Nestlé 65.7
Stride Stapled Group 65.1
Transurban Group 64.3
Trade Me Group 59.9
Air New Zealand 59.6
NIKE 56.1
Samsung Electronics Co 53.3
Telstra Corporation 52.9
KDDI Corporation 51.2
Service Corporation International 48.0
AGL Energy 47.9
EBOS Group 47.2
Metlifecare 46.7
Sky Network Television 45.6
Wesfarmers 44.7
Vital Healthcare Property Trust 44.4
Argosy Property 43.9
Anthem Incorporated 43.8
Genesis Energy 42.0
Taiwan Semiconductor Manufacturing Company 39.6
Mastercard 39.5
Teva Pharmaceutical Industries 39.5
NX2 (Puhoi to Warkworth PPP) 39.3*
Freightways 38.8
Sydney Airport 38.5
Oracle Corp 38.0
Commonwealth Bank of Australia 37.7

Note that this table does not attempt to aggregate any known indirect investment exposures incurred through pooled investment vehicles with the
direct investments in the various companies shown in the table. ACC has $610 million invested in five pooled investment vehicles that invest in listed
equity markets. The bulk of this investment ($515 million) is invested in an unlisted global equity fund managed by Orbis Investment Management.
* The value shown for Kiwi Group Holdings represents ACC’s original purchase cost, whereas the values shown for the Wellington Gateway
Partnership and NX2 are based on independent valuations as no observable markets values exists for these untraded equity investments.

74 ACCIDENT COMPENSATION CORPORATION

Ethical investment
ACC aims to conduct its investment activities in an ethical manner that avoids prejudice to New Zealand’s
reputation as a responsible member of the world community.

ACC works closely with the Guardians of New Zealand Superannuation, the Government Superannuation
Fund Authority and the National Provident Fund on all aspects of ethical investment, and is a signatory to
the United Nations Principles for Responsible Investment (see www.unpri.org).

In addition to carrying out its own investment activities in an ethical manner, ACC avoids directly investing
in entities that are engaged in activities that would be regarded as unethical by a substantial majority of the
New Zealand public. ACC takes the laws of New Zealand to be a reflection of those principles that are widely
held by the New Zealand public. Hence ACC seeks to avoid investing in entities that engage in activities that
would be illegal if they occurred in New Zealand. ACC also avoids investing in companies involved in the
production of tobacco, recognising that while tobacco is still legal in New Zealand, it is greatly discouraged
by New Zealand public policy.

Specifically, ACC will not directly invest in entities that are involved in the following activities:

• production of tobacco or cannabis-based products

• production or sale of anti-personnel land mines that are not compliant with the Anti-Personnel Mines
Prohibition Act 1998

• production, design, testing, assembly or refurbishment of nuclear explosive devices

• production or development of cluster munitions

• processing of whale meat.

ACC has a legal requirement to invest as a trustee, which implies a fiduciary responsibility to achieve
the best possible mix of long-term return and risk in its investment funds. So while ACC recognises that
significant numbers of New Zealanders may believe that various other activities are unethical (for example,
involvement in gambling, fast food, sugary soft drinks, alcoholic beverages, factory farming, or coal mining),
ACC would be unlikely to impose a blanket exclusion on investing in these activities unless New Zealand’s
Parliament passed laws to ban these activities in New Zealand. If New Zealand’s democratically elected
Parliament did ban an activity, ACC would likely presume that Parliament’s decision reflected the majority
view of the New Zealand public. In addition to avoiding investments in companies that engage in activities
that are contrary to New Zealand law, we will never make any form of investment that is in itself illegal
under New Zealand law.

In addition to excluding investments in specific types of activity, ACC will occasionally exclude companies
that it believes are behaving in an unethical manner if there seems to be little chance that the companies
will change their behaviour. In these cases ACC will typically discuss its concerns with the companies before Investments
making final decisions to add them to our exclusion list. We hope that, in many cases the board or senior report
management of a company will seek to improve their company’s behaviour when they recognise that some
aspect of how they have been conducting their business is attracting unfavourable attention from large
investors such as ACC.

ANNUAL REPORT 2017 75

Statement of
performance and
financial statements

77
Statement of responsibility
(PURSUANT TO SECTION 155 OF THE CROWN ENTITIES ACT 2004)
We are responsible for the preparation of these financial statements and statement of performance and for
the judgements made in them.

We are responsible for any end-of-year performance information provided by ACC under section 19A of the
Public Finance Act 1989.

We have the responsibility for establishing and maintaining a system of internal control designed to provide
reasonable assurance as to the integrity and reliability of financial reporting.

In our opinion, these financial statements and statement of performance fairly reflect the financial position
and operations of ACC for the year ended 30 June 2017.

Signed on behalf of the Board:

Dame Paula Rebstock DNZM Trevor Janes

Board Chair Deputy Chair

78 ACCIDENT COMPENSATION CORPORATION

Statement of performance
The statement of performance reports against the measures contained in ACC’s Service Agreement 2016/17.
We have provided explanations for performance measures that were not achieved.

Public value scorecard

Section 1 of the statement of performance summarises our performance against ACC’s public value
scorecard. Public value is an organising principle for public service organisations that is equivalent to
shareholder value for private companies. It has been adopted by public sector organisations worldwide.

The public value framework recognises that our activity should:

• create economic or social value for clients as individuals or society at large

• enjoy sufficient support from politicians and the wider public to attract the necessary resources

• be achievable given the capabilities available from ACC and external suppliers.

We use four categories of measure that enable us to assess our overall performance in delivering public
value.

• Reach – the proportion of the New Zealand population served.

• Customer – the quality and effectiveness of the services provided.

• Impact – how effective we are at delivering the desired outcomes.

• Cost effectiveness – value for money and financial sustainability.

Performance against output delivery

Section 2 of the statement of performance includes a brief explanation of what is intended to be achieved
within each output and ACC’s performance against all other output measures included in the Service
Agreement 2016/17, excluding those already reported in our public value scorecard.

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 79

Section 1: Public value scorecard
Actual Target Actual Target
Category Measuring our contribution to New Zealand 2015/16 2016/17 2016/17 met?

Percentage of population who received

Reach compensation or rehabilitation services
30.8% 30.6% 30.6%
✓
How many
New Zealanders did we
help?

Actual Target Actual Target

Category Measuring our contribution to New Zealand 2015/16 2016/17 2016/17 met?

Cover decision timeliness

1.1
days
1.2
days
1.2
days ✓
Average time to commence weekly compensation

Customer
payments
8.3
days
<9
days
7
days ✓
Did we meet Formal reviews as a percentage of entitlement
expectations? claims
2.5% 2.6% 2.7%
✗ Refer to Note 1

Percentage of reviews upheld 84.2% ≥85% 81.7%

✗ Refer to Note 2

Average time to resolution for claims with reviews

88
days
<90
days
94.8
days ✗ Refer to Note 3

Public trust and confidence 63% 62% 62%

✓
Customer satisfaction – clients 76% 76% 78%
✓
Customer satisfaction – levy payers 69% 71% 68%
✗ Refer to Note 4

The number of category 3, 4 and 5 privacy breaches

and near misses
New
measure <5 1
✓

80 ACCIDENT COMPENSATION CORPORATION

 Actual Target Actual Target
Category Measuring our contribution to New Zealand 2015/16 2016/17 2016/17 met?

Return to work within 10 weeks 67.6% 67.5% 68.4%

✓
Return to work within nine months
Impact (273 days)
92.8% 92.8% 93.1%
✓
Did we deliver?
Durable-return-to work rate 79.0% 78.0% 80.0%
✓
Return to independence for those not in the
workforce
86.7% 86.0% 85.8%
✗ Refer to Note 5

Number of long-term clients returned to

independence in the past 12 months
2,796 2,950 3,340
✓

Actual Target Actual Target

Category Measuring our contribution to New Zealand 2015/16 2016/17 2016/17 met?

Percentage of total expenditure paid directly to

clients or for services to clients
86.0% 86.3% 85.8%
✗ Refer to Note 6

Total levies and appropriations as a percentage of

Cost gross domestic product
1.6% 1.6% 1.6%
✓
effectiveness
Were we fair and
Change in annual treatment cost per injury 1.7% ≤4.0% 3.4%
✓
affordable?
Ratio of this year’s total levies to the total claims
incurred for this year’s accidents over time
0.8 0.9–1.1 0.8
✗ Refer to Note 7

Investment performance (after costs) above

benchmark
0.55% 0.30% 1.35%
✓
Return from insurance operations –$581m –$135m -$1,198m
✗ Refer to Note 8

The portfolio of injury prevention investments will

have an assessed positive return on investment
$1.60:1 $1.35:1 $1.63:1
✓

NOTE 1 – FORMAL REVIEWS AS A PERCENTAGE OF ENTITLEMENT CLAIMS

The number of reviews increased (9% annual growth), however we also saw a steady improvement in the
proportion of reviews withdrawn or settled.

We aim to reduce the review applications lodged through quality decisions and clear communication of
decision rationale. We also recognise that applications will continue to be submitted at clients’ discretion
and in an environment of strong advocacy networks.
Statement of
performance
and financial
statements

ANNUAL REPORT 2017 81

NOTE 2 – PERCENTAGE OF REVIEWS UPHELD
The percentage of reviews in ACC’s favour was below target due to the increasing complexity of reviews.
Appropriate measures of review complexity are being developed. The largest driver of the below target
result relates to elective surgery-related reviews. We are working with FairWay1 to identify reviews where
additional information is required earlier in the dispute process.

NOTE 3 – AVERAGE TIME TO RESOLUTION FOR CLAIMS WITH REVIEWS

There has been a deterioration in review timeliness. This is largely due to a growing number of
advocate-requested adjournments, and implementing the Miriam Dean QC report2 recommendations.

We expect to improve review timeliness in 2017/18. We have actions in place, we are hiring additional
resources, and FairWay is streamlining its processes to manage reviews. We have restructured ourselves to
enable increased consistency, stronger expertise in administration reviews and review representation, and
higher quality in our submissions.

NOTE 4 – CUSTOMER SATISFACTION – LEVY PAYERS

Levy payer satisfaction dropped significantly in the fourth quarter to 58%, giving an annual result of 68%.
The drop was noticeable across small, medium and large businesses, with a smaller drop in satisfaction
among the self-employed.

We will replace our core levy management system in 2017/18. The new system will align with improved
reporting and digital services for business customers. Changes to our experience rating system will give
employers more options around risk sharing. These changes will improve business customer experience, but
it may take time for the changes to translate into increased satisfaction.

NOTE 5 – RETURN TO INDEPENDENCE FOR THOSE NOT IN THE WORKFORCE

Returns to independence for those not in the workforce are slightly below target. This does not reflect
a deterioration in client outcomes. Client payments are a key component of this measure, and some
retrospective invoicing for in-between travel in 2016 has affected this result in the short term. Without the
impact of these retrospective invoices, our result would be higher than target.

NOTE 6 – PERCENTAGE OF TOTAL EXPENDITURE PAID DIRECTLY TO CLIENTS OR FOR

SERVICES TO CLIENTS
Our Transformation programme operating costs are higher than expected. We have adopted an ‘as a
service’ approach in the programme, meaning a lower-than-expected proportion of capital expenditure.

Additionally, claims costs are lower than expected this year.

NOTE 7 – RATIO OF THIS YEAR’S TOTAL LEVIES TO THE TOTAL CLAIMS INCURRED
FOR THIS YEAR’S ACCIDENTS OVER TIME
This year’s result of 0.8 is slightly lower than our target for 2016/17. It is in line with the longer-term stable
target of $0.7:$1 – $0.8:$1 included in the Service Agreement 2017/18.

High growth in claims this year meant claims costs and the outstanding claims liability (OCL) for these
claims increased. As all our levied Accounts are above the targeted levels defined in our Funding Policy, we
expect levy income to be lower than claims costs and liabilities.

1 FairWay Resolution Limited is ACC’s independent reviewer.

2 An independent review by Miriam Dean QC on ACC ‘s dispute resolution processes, May 2016.

82 ACCIDENT COMPENSATION CORPORATION

NOTE 8 – RETURN FROM INSURANCE OPERATIONS
The return from insurance operations is $1,063 million lower than budgeted. The main driver is the
$830 million increase in our OCL, reflecting claims experience (costs and durations) exceeding actuarial
assumptions.

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 83

Section 2: Performance against output
delivery
The breakdown of our revenue earned and costs incurred compared with expected revenue and costs
reported in the Service Agreement 2016/17 is as follows:

Administration Claims paid Revenue

$M Actual Budget Actual Budget Actual Budget
Output class 1 – injury 55 62 – – – –
prevention
Output class 2 – levy 37 41 – – 4,106 3,987
setting and collection
Output class 3 68 64 – – 2,072 1,484
– investment
management1
Output class 4 433 417 3,705 3,724 – –
– claims management
Total 593 584 3,705 3,724 6,178 5,471
Other operating costs 89 70      
Total ACC 682 654 3,705 3,724 6,178 5,471
1. Including trading costs netted against investment income in accordance with generally accepted accounting practice.

The relevant public value measure is:

• return from insurance operations.

Refer to Section 1 for performance against public value measures.

84 ACCIDENT COMPENSATION CORPORATION

Output 1:
Injury prevention
ACC is one of a number of government agencies with a responsibility to reduce the incidence and severity of
injury in New Zealand.

We can only undertake an injury prevention activity if it is likely to result in a cost-effective reduction in
actual or projected levy rates or the Non-Earners’ appropriation. This requirement means that we focus our
effort on injuries that affect the Scheme, such as high-cost and high-volume claims that affect claim costs,
the OCL and levies.

We work with non-government agencies, community groups and other government agencies so that the
activities and funding are effective. This coordination role is as important as providing funding for injury
prevention interventions.

The public value measure relevant to this output class is:

• return on investment for the portfolio of approved injury prevention investments.

Refer to Section 1 for performance against public value measures.

OTHER INJURY PREVENTION OUTPUT MEASURES

Performance
Measure Actual 2015/16 Target 2016/17 Actual 2016/17 against target
The number of people directly New measure 250,000 528,628 Achieved
affected by injury prevention
programmes

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 85

Output 2:
Levy setting and collection
The Scheme is managed through five accounts, with each providing cover for a specific grouping of injuries.

In order for us to deliver services, we must collect revenue. Through our levy-setting process we calculate
our future revenue needs for each account. We recommend levies that are sufficient to cover the cost of
claims incurred in that year.
The account and who funds it What’s covered 2014/15 2015/16 2016/17 2017/18

Work Account
Employers: $0.95 per $0.90 per $0.80 per $0.72 per
Based on wages paid to staff Work-related injuries $100 liable $100 liable $100 liable $100 liable
Self-employed: earnings earnings earnings earnings
Based on income earned

Earners’ Account
Employers: $1.26 per $1.26 per $1.21 per $1.21 per
Non-work injuries to
Based on income earned $100 liable $100 liable $100 liable $100 liable
people in employment
Self-employed: earnings earnings earnings earnings
Based on income earned

Motor Vehicle Account Injuries that involve $329.93 $194.25 $130.26 $113.94
Vehicle owners:
moving motor vehicles per motor per motor per motor per motor
Funded through petrol use and the
on public roads vehicle vehicle vehicle vehicle
motor vehicle licensing fees

Non-Earners’ Account Injuries that happen

The Government: to people not in the
Funded by general taxation workforce

Treatment Injury Account

The Government and employees: Injuries caused by
Funded by the Earners’ and Non- medical treatment
earners’ Accounts

The public value measures relevant to this output class are:

• levy payer satisfaction

• ratio of this year’s total levies to the total claims incurred for this year’s accidents

• total levies and appropriations as a percentage of gross domestic product.

Refer to Section 1 for performance against public value measures.

86 ACCIDENT COMPENSATION CORPORATION

Activity information
The table below shows the number of funders, and the levy and appropriation revenue, for each account.

Actual Actual
2015/16 2016/17
Levy-funded accounts
Work Account Number of employed and self-employed1 2,370,000 2,460,000
Levy revenue ($M) 695 791
Earners’ Account Number of earners2 2,400,000 2,480,000
Levy revenue ($M) 1,261 1,397
Motor Vehicle Account Number of vehicles2 3,380,000 3,600,000
Levy revenue ($M) 732 552
Government-funded account
Number of non-earners2 2,260,000 2,270,000
Non-Earners’ Account
Government appropriation ($M) 955 1,088
Mixed-funded account
Number of non-earners2 2,260,000 2,270,000
Treatment Injury Government appropriation ($M) 120 143
Account Number of earners2 2,400,000 2,480,000
Levy revenue ($M) 163 135
1. Sourced from Statistics New Zealand household labour force survey (actuals as at 30 June each year).
2. Figures based on ACC actuarial estimates.

Other levy-setting and collection output measures

Each account operates independently and cannot cross-subsidise another. For this reason we monitor
forecast funding ratios by account for the year.

Actual Forecast Actual

Solvency as at 30 June (%) 2015/16 2016/17 2016/17
Work Account3 117.2% 117.2% 121.7%
Work Account 140.0% 138.6% 148.2%
(excluding gradual process)
Earners’ Account 112.8% 114.0% 114.3%
Motor Vehicle Account 107.8% 113.0% 110.9%
Non-Earners’ Account 41.9% 43.7% 42.7%
Treatment Injury Account 68.3% 73.5% 67.0%
ACC 94.9% 97.9% 96.7%
3. The Work Account funding ratio shown here includes the additional liability for work-related gradual process claims not yet made.

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 87

Output 3:
Investment management
The purpose of our investment portfolio is to meet the future costs of incurred claims from long-term
injuries without the need for any catch-up contributions from future levy payers. To meet this purpose, we
tend to favour long-term investments that we expect to deliver relatively certain income streams for long
periods of time. Such investments match our long-term cash flow requirements, and also tend to provide
an offset against the risk of declines in interest rates. Interest rate declines mean that we need to put aside
more money in the present to fund every dollar of future claim costs.

We intend to manage our investments with the objective of obtaining the best possible balance of return
and risk. To this end, we:

• review strategic asset allocations to ensure that the benchmark asset allocations provide the best
possible balance of risk and expected returns for our objectives

• actively manage our investment portfolios with the objective of obtaining better risk-adjusted returns
from those portfolios than would be achieved from passive management.

Activity information
Funds under management and investment returns
40 16
14.6
35.5 37.3
35 14

30 32.1
12
27.4
24.4
25 10
10.2
9.7

% return
20 8
$B

15 6
6.3 5.7

10 4

5 2

0 0
2012/13 2013/14 2014/15 2015/16 2016/17
Investment funds under management % return after costs

The public value measure relevant to this output class is:

• investment performance after costs relative to benchmark.

Refer to Section 1 for performance against public value measures.

88 ACCIDENT COMPENSATION CORPORATION

Other investment management output measures
The efficiency of our investment management is measured by expressing total investment management
costs as a proportion of the total funds under management.

Actual Target Actual Performance

Measure 2015/16 2016/17 2016/17 against target
Investment management costs as a proportion 0.13% 0.15% 0.14% Achieved
of total funds under management

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 89

Output 4:
Claims management
We help injured people covered by the Scheme to get the appropriate medical treatment, social and vocational
rehabilitation services and compensation to enable a return to work, independence or everyday life.

We manage claims from the relatively minor, where clients only require primary health services (such as
a one-off visit to a general practitioner), to claims from individuals who suffer serious injuries requiring
lifelong services and support.

Activity information
The following table shows the recent trends in the number and types of claims we receive and accept. The
Scheme is based on legislation and each claim is evaluated to determine whether it meets the requirements
of the Accident Compensation Act 2001. We do not ration our services, as demand is determined by the
number of covered injuries that occur and the types and amount of services that those who have covered
injuries are eligible to receive.

Measure Definition 2012/13 2013/14 2014/15 2015/16 2016/17

Registered Total number of registered 1,714,770 1,791,713 1,838,455 1,929,879 1,946,368
claims claims in the period
Medical fees Total number of medical fees 1,514,177 1,572,293 1,593,269 1,660,004 1,614,028
only claims only claims in the period
Other Total number of entitlement 93,401 96,951 105,375 110,674 115,918
entitlement claims (all entitlement
claims claims excluding weekly
compensation) that receive
payments in the period
Weekly Total number of weekly 88,442 89,616 100,727 106,975 112,858
compensation compensation claims that
claims receive payments in the
period
Long-term Number of clients receiving 10,398 10,763 11,483 12,290 12,691
weekly weekly compensation for
compensation more than one year as at 30
claims June
New serious Total number of new serious 236 269 286 272 161
injury claims1 injury claims in the period
Fatal claims Total number of fatal claims 1,195 1,171 1,268 1,232 1,067
in the period
1. Significant impairments or disabilities as a result of injuries (eg spinal injury, traumatic brain injury and other catastrophic injuries).
We enable clients to receive the appropriate entitlements under the Scheme while keeping total
expenditure financially sustainable. We monitor expenditure against budget for the key cost drivers of the
Scheme. This is shown below.

Expenditure against key cost drivers Actual Forecast Actual

$M 2015/16 2016/17 2016/17
Non-fatal weekly compensation 1,045 1,072 1,113
Social rehabilitation 590 642 647
Medical treatment 669 731 712
Hospital treatment (elective surgery) 322 357 331
Public health acute services 469 477 477

90 ACCIDENT COMPENSATION CORPORATION

The public value measures relevant to this output class are:

• client satisfaction

• cover decision timeliness

• average time to commence weekly compensation payments

• formal reviews as a percentage of entitlement claims

• percentage of ACC reviews upheld

• average time to resolution for claims with reviews

• return to work within 10 weeks and nine months

• durable-return-to-work rate

• return to independence for those not in the workforce

• number of long-term clients returned to independence in the previous 12 months.

Refer to Section 1 for performance against public value measures.

Other claims management output measures

The costs associated with this output class have the largest bearing on overall Scheme financial
sustainability. We must provide quality services to clients in an efficient manner. This requires the
responsible management of controllable costs, ensuring that all expenditure is necessary and cost effective.

Key cost drivers are influenced by underlying claim numbers, the rate at which those claims access
entitlements, the time taken to rehabilitate clients, and the medical costs associated with rehabilitation.
Health care inflation is also a key driver of costs in this area.

These measures are intended to enable our performance to be evaluated by the types of service provided,
for example rehabilitation or elective surgery, in the areas that have the greatest impacts on Scheme costs.
They align with the measures reported against the customer experience strategic intention, but provide
greater detail with which to assess our performance during the year.

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 91

 Actual Target Actual Performance
Measure 2015/16 2016/17 2016/17 against target
Growth in average care packages 3.0% ≤2.1% 4.1% Not achieved
rehabilitation
for serious
– refer Note 1
Social

injury
Proportion of clients with care 47% 45% 47% Not achieved
hours significantly above or below – refer Note 2
benchmarks
Return to work within six months 88.3% 88.4% 88.8% Achieved
(182 days)
Rehabilitation

Net movement in the number +807 +806 +401 Achieved

of clients receiving weekly
compensation for more than one
year
Abatement rate for long-term 12% 12% 11.9% Not achieved
clients1 – refer Note 3
Average time taken by ACC to 32.1 days <31 days 32.2 days Not achieved
make surgery decisions – declined – refer Note 4
Elective surgery outcomes

requests
Growth in average elective surgery 3.6% ≤6.9% 3.5% Achieved
cost per claim
Proportion of clients who go ahead 85.2% 86% 84.7% Not achieved
with surgery who are successfully – refer Note 5
rehabilitated 12 months after being
approved for surgery
Note: successfully rehabilitated is
defined as no longer receiving ACC
support
Average cost per claim $2,370 $2,433 $2,444 Not achieved
Efficiency

Administration costs less – refer Note 6.

investment management and injury
prevention costs/active entitlement
claims
1. Weekly compensation payments are reduced as clients return to part-time work.

NOTE 1 – GROWTH IN AVERAGE CARE PACKAGES

The 2016/17 growth in care packages of 4.1% includes a 1.1% increase from in-between travel (IBT). Excluding
IBT, the growth rate was 3.0%, the same as 2015/16, but higher than target. Sustained performance above
our actuarial assumptions can lead to an increase in the OCL.

During the year we have focused on ensuring that we have consistent practices and tools in care package
design and implementation across the serious injury portfolio to counter some of this growth, without
affecting client outcomes.

NOTE 2 – PROPORTION OF CLIENTS WITH CARE HOURS SIGNIFICANTLY ABOVE OR

BELOW BENCHMARKS
While this measure is outside the target, the larger group of clients has care hours under the benchmark,
not over it. This actuarial measure provides insights into the care needs of our current serious injury
portfolio compared with our history. We remain committed to assessing the care and support needed by our
clients on an individual basis.

92 ACCIDENT COMPENSATION CORPORATION

NOTE 3 – ABATEMENT RATE FOR LONG-TERM CLIENTS
The abatement rate for long-term clients measures the percentage of clients in part-time work and remains
below, but close to, target. This year we made a number of changes to the way we set up and manage
weekly compensation. One of the areas we focused on is abatement and ensuring a smoother transition
back to work.

NOTE 4 – A
 VERAGE TIME TAKEN BY ACC TO MAKE SURGERY DECISIONS – DECLINED
REQUESTS
We have been focusing on improving the consistency, efficiency and timeliness of the elective surgery
process. We completed a pilot in the South Island where our Treatment Assessment Centre made
elective surgery decisions on behalf of a small number of pilot branches. The results demonstrated faster
decision-making and an improved customer experience. We will roll out this approach nationally in 2017/18.

NOTE 5 – P
 ROPORTION OF CLIENTS WHO GO AHEAD WITH SURGERY WHO ARE
REHABILITATED 12 MONTHS AFTER BEING APPROVED FOR SURGERY
The proportion of clients who go ahead with surgery, and who are successfully rehabilitated, remains below
target. The performance of this measure follows the trends in the 10-week rehabilitation rate from a year
ago. We expect performance to improve in 2017/18.

NOTE 6 – AVERAGE COST PER CLAIM

Our Transformation programme operating costs are higher than expected. We have adopted an ‘as a
service’ approach in the programme, meaning a lower-than-expected proportion of capital expenditure
in the programme. The higher proportion of transformation operating expenditure is the key driver of the
higher-than-expected result.

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 93

Financial statements
Consolidated statement of comprehensive revenue and expense
For the year ended 30 June 2017

Actual Actual Budget

$M Notes 2017 2016 2017
Net levy revenue 4 4,106 3,926 3,987
Other revenue 2 1 –
Total net levy and other revenue 4,108 3,927 3,987
Investment revenue 2,052 3,253 1,460
Less investment management costs 48 43 40
Net investment revenue 5 2,004 3,210 1,420
Claims paid 3,705 3,502 3,724
Increase in outstanding claims liability 7(C) 1,076 6,334 1,169
Movement in unexpired risk liability 7(F) 110 103 59
Total claim costs 4,891 9,939 4,952
Injury prevention costs 6 55 50 62
Shaping Our Future costs 6 61 23 33
Operating costs 6 495 491 495
Other costs 6 3 1 –
Net surplus (deficit) 607 (3,367) (135)
Total comprehensive revenue and expense for 607 (3,367) (135)
the year

Consolidated statement of changes in reserves (equity)

For the year ended 30 June 2017

Actual Actual Budget

$M 2017 2016 2017
Total Account reserves
Balance at the beginning of the year (deficit) (1,865) 1,502 (601)
Total comprehensive revenue and expense for 607 (3,367) (135)
the year
Balance at the end of the year (deficit) (1,258) (1,865) (736)

The accompanying notes form part of these financial statements.

94 ACCIDENT COMPENSATION CORPORATION

Consolidated statement of financial position
As at 30 June 2017

Actual Actual Budget

$M Notes 2017 2016 2017
Account reserves
Motor Vehicle Account 1,102 770 1,235
Non-Earners’ Account (4,597) (4,511) (4,159)
Earners’ Account 1,106 956 1,054
Work Account 3,001 2,548 2,459
Treatment Injury Account (1,870) (1,628) (1,325)
Total Account reserves (deficit) (1,258) (1,865) (736)
Represented by:
Assets
Cash and cash equivalents 10 93 282 594
Receivables 11 218 321 319
Accrued levy revenue 12 2,108 2,027 2,165
Investments 8 36,836 34,673 35,254
Derivative financial instruments 9 519 877 –
Property, plant and equipment, and intangible assets 14 116 111 180
Total assets 39,890 38,291 38,512
Less liabilities
Payables and accrued liabilities 15 734 955 999
Derivative financial instruments 9 78 52 –
Provisions 16 47 43 –
Unearned levy liability 7(E) 1,870 1,873 1,872
Unexpired risk liability 7(F) 680 570 584
Outstanding claims liability 7(C) 37,739 36,663 35,793
Total liabilities 41,148 40,156 39,248
Net assets (liabilities) (1,258) (1,865) (736)

For and on behalf of the Board, which authorised the issue of these financial statements on 28 September 2017:

Dame Paula Rebstock DNZM Trevor Janes

ACC Chair Deputy Chair
Date: 28 September 2017 Date: 28 September 2017

Statement of
performance
and financial
The accompanying notes form part of these financial statements. statements

ANNUAL REPORT 2017 95

Consolidated statement of cash flows
For the year ended 30 June 2017

Actual Actual Budget

$M 2017 2016 2017
Cash flows from operating activities
Cash was provided from:
Levy revenue 4,070 4,288 3,915
Investment revenue 1,283 1,243 1,270
Other revenue 21 24 1
Goods and services tax (net) 1 – 4
5,375 5,555 5,190
Cash was applied to:
Payments towards injury treatment and prevention 4,336 4,100 4,335
Goods and services tax (net) – 65 –
4,336 4,165 4,335
Net cash movement from operating activities 1,039 1,390 855

Cash flows from investing activities

Cash was provided from:
Proceeds from sale of investments 51,749 63,373 50,000
Proceeds from sale of property, plant and equipment, – 1 –
and intangible assets
51,749 63,374 50,000
Cash was applied to:
Payment for investments 52,929 64,762 50,762
Payment for property, plant and equipment, and 48 23 93
intangible assets
52,977 64,785 50,855
Net cash movement from investing activities (1,228) (1,411) (855)
Net (decrease) in cash and cash equivalents (189) (21) –
Cash and cash equivalents – opening balance 282 303 594
Cash and cash equivalents – closing balance 93 282 594

The accompanying notes form part of these financial statements.

96 ACCIDENT COMPENSATION CORPORATION

Reconciliation of the net cash inflow from operating activities with
the reported net surplus (deficit)
Actual Actual Budget
 $M 2017 2016 2017
Net surplus (deficit) 607 (3,367) (135)
Add (less) items classified as investing activities:
Realised (gains) on sale of investments (1,167) (1,862) (214)
Add (less) non-cash items:
Depreciation and amortisation 41 46 43
Property, plant and equipment, and intangible assets 2 1 –
impairment/write-offs
Unrealised (gains) on investments 386 (150) –
Movement in provisions 4 1 –
Change in provision for impairment of levy debtors 12 10 –
Movement in unexpired risk liability 110 103 59
Increase in outstanding claims liability 1,076 6,334 1, 169
Add (less) movements in working capital items:
Receivables and accrued levy revenue (16) 200 (117)
Payables and accrued liabilities (13) (76) 5
Unearned levy liability (3) 150 45
Net cash inflow from operating activities 1,039 1,390 855

Statement of
performance
and financial
The accompanying notes form part of these financial statements. statements

ANNUAL REPORT 2017 97

ACC Accounts
The Accident Compensation Corporation Scheme (as required through the Accident Compensation Act 2001
(‘the AC Act’)) is managed through five separate Accounts, being the Motor Vehicle, Non-Earners’, Earners’,
Work, and Treatment Injury Accounts. Each Account receives individual funding and is maintained for a
separate purpose.

Under the AC Act, unless otherwise provided by that Act, funds held in an Account can only be used to
meet costs incurred in the same Account. This means that cross-subsidisation between separate Accounts
is not permitted. ACC therefore manages and separately reports on the performance and solvency of each
Account.

The basis of setting levies is a full-funding basis for all levy payers other than the Government in respect of
the Non-Earners’ Account.

The ACC Board recommends sustainable levies to achieve the full funding of the Motor Vehicle, Earners’
and Work Accounts, but final levy rates are set by the Government. Claims incurred from 1 July 2001 in the
Non-Earners’ Account are fully funded by the Government. Claims before that date continue to be funded
on a pay-as-you-go basis.

The Treatment Injury Account is funded through levies from the Earners’ and Non-Earners’ Accounts on the
basis of whether the treatment injury claims are from earners or non-earners.

The accompanying notes form part of these financial statements.

98 ACCIDENT COMPENSATION CORPORATION

Statement of comprehensive revenue and expense and changes in
Account reserves (equity)

MOTOR VEHICLE ACCOUNT

For the year ended 30 June 2017

Actual Actual Budget

$M Notes 2017 2016 2017
Levy revenue(i) 552 732 509
Total net levy and other revenue 552 732 509
Investment revenue 580 1,001 431
Less investment management costs 14 13 12
Net investment revenue 566 988 419
Claims paid(ii) 513 477 507
Increase in outstanding claims liability 7(C) 151 1,687 195
Movement in unexpired risk liability 7(F) 63 20 49
Total claim costs 727 2,184 751
Injury prevention costs 9 12 10
Operating, Shaping Our Future and other costs 50 48 48
Net surplus (deficit) 332 (524) 119
Total comprehensive revenue and expense for 332 (524) 119
the year

Account reserve – opening balance 770 1,294 1,116

Total comprehensive revenue and expense for 332 (524) 119
the year
Account reserve – closing balance 1,102 770 1,235
Outstanding claims liability (OCL) 10,068 9,917 9,532
Net assets excluding OCL 11,170 10,687 10,767

Notes:

(i) The Motor Vehicle Account derives its funds from:

• levies on motor vehicle ownership

• the levies portion of the excise duty on petrol

• the motorcycle safety levy on moped and motorcycle owners.

(ii) These funds are applied in accordance with the AC Act in respect of motor vehicle injury suffered on or
after 1 April 1974.

Statement of
performance
and financial
The accompanying notes form part of these financial statements. statements

ANNUAL REPORT 2017 99

Statement of comprehensive revenue and expense and changes in
Account reserves (equity)

NON-EARNERS’ ACCOUNT
For the year ended 30 June 2017

Actual Actual Budget

$M Notes 2017 2016 2017
Funds appropriated by Parliament(i) 1,231 1,075 1,232
Less funding of Treatment Injury Account (143) (120) (140)
Total net levy and other revenue 1,088 955 1,092
Investment revenue 220 340 150
Less investment management costs 5 5 4
Net investment revenue 215 335 146
Claims paid(ii) 995 964 1,023
Increase in outstanding claims liability 7(C) 261 1,520 219
Total claim costs 1,256 2,484 1,242
Injury prevention costs 14 12 18
Operating, Shaping Our Future and other costs 119 106 111
Net (deficit) (86) (1,312) (133)
Total comprehensive revenue and expense for (86) (1,312) (133)
the year

Account reserve – opening balance (deficit) (4,511) (3,199) (4,026)

Total comprehensive revenue and expense for (86) (1,312) (133)
the year
Account reserve – closing balance (deficit) (4,597) (4,511) (4,159)
Outstanding claims liability 8,028 7,767 7,390
Net assets excluding OCL 3,431 3,256 3,231

Notes:

(i) The Non-Earners’ Account derives its funds from appropriations by Parliament.

(ii) These funds are applied in accordance with the AC Act in respect of personal injury (other than motor
vehicle injury) to non-earners, suffered on or after 1 April 1974.

The accompanying notes form part of these financial statements.

100 ACCIDENT COMPENSATION CORPORATION

Statement of comprehensive revenue and expense and changes in
Account reserves (equity)

EARNERS’ ACCOUNT
For the year ended 30 June 2017

Actual Actual Budget

$M Notes 2017 2016 2017
Levy revenue(i) 1,532 1,424 1,489
Less funding of Treatment Injury Account (135) (163) (159)
Other revenue 1 – –
Total net levy and other revenue 1,398 1,261 1,330
Investment revenue 552 779 373
Less investment management costs 12 11 10
Net investment revenue 540 768 363
Claims paid(ii) 1,283 1,190 1,262
Increase in outstanding claims liability 7(C) 282 1,427 432
Movement in unexpired risk liability 7(F) 19 179 9
Total claim costs 1,584 2,796 1,703
Injury prevention costs 11 9 10
Operating, Shaping Our Future and other costs 193 183 183
Net surplus (deficit) 150 (959) (203)
Total comprehensive revenue and expense for 150 (959) (203)
the year

Account reserve – opening balance 956 1,915 1,257

Total comprehensive revenue and expense for 150 (959) (203)
the year
Account reserve – closing balance 1,106 956 1,054
Outstanding claims liability 7,753 7,471 7,511
Net assets excluding OCL 8,859 8,427 8,565

Notes:

(i) The Earners’ Account derives its funds from:

• levies payable by earners on their earnings

• levies from the purchase of weekly compensation by non-earners.

(ii) These funds are applied in accordance with the AC Act in respect of personal injury to earners (other
than work injury or motor vehicle injury) suffered on or after 1 July 1992.

(iii) In the year ended 30 June 2016 levy revenue was reduced by an amount of $75.1 million transferred
to the Work Account. This is an adjustment for the Earners’ portion of the credit notes issued for
CoverPlus Extra income from shareholder-employees since the commencement of sales of the product
that was previously charged to the Work Account.

Statement of
performance
and financial
The accompanying notes form part of these financial statements. statements

ANNUAL REPORT 2017 101

Statement of comprehensive revenue and expense and changes in
Account reserves (equity)

WORK ACCOUNT
For the year ended 30 June 2017

Actual Actual Budget

$M Notes 2017 2016 2017
Levy revenue(i) 791 695 757
Other revenue 1 1 –
Total net levy and other revenue 792 696 757
Investment revenue 479 792 347
Less investment management costs 12 10 10
Net investment revenue 467 782 337
Claims paid(ii) 731 707 752
(Decrease) increase in outstanding claims liability 7(C) (136) 533 56
Movement in unexpired risk liability 7(F) 28 (96) 1
Total claim costs 623 1,144 809
Injury prevention costs 15 14 18
Operating, Shaping Our Future and other costs 168 152 159
Net surplus 453 168 108
Total comprehensive revenue and expense for 453 168 108
the year

Account reserve – opening balance 2,548 2,380 2,351

Total comprehensive revenue and expense for 453 168 108
the year
Account reserve – closing balance 3,001 2,548 2,459
Outstanding claims liability 6,231 6,367 6,364
Net assets excluding OCL 9,232 8,915 8,823

Notes:

(i) The Work Account derives its funds from levies payable by employers and earners who are
self-employed.

(ii) These funds are applied in accordance with the AC Act in respect of:

• work injury suffered on or after 1 April 2000 by employees of employers who are insured by ACC,
and for all employees’ work injuries incurred on and after 1 July 2000

• work injury suffered on or after 1 July 1999 and before 1 July 2000 by self-employed persons who
were insured by ACC, and for self-employed work injuries incurred on and after 1 July 2000

• accidents prior to 1 July 1999 that are non-work injury (other than motor vehicle injury) suffered by
earners on or after 1 April 1974 and before 1 July 1992

• accidents prior to 1 July 1999 that are work injury, other than motor vehicle injury, suffered on or
after 1 April 1974.

The accompanying notes form part of these financial statements.

102 ACCIDENT COMPENSATION CORPORATION

Included in the Work Account is the Non-Compliers Fund (the Fund). The Fund was set up to cover
employees who were injured while working for an employer who had not taken out accident insurance
during the time when the workplace accident insurance market was opened up for competition. The Fund
was transferred to ACC following the restoration of ACC as sole provider of workplace accident insurance.
The net surplus for the year ended 30 June 2017 for the Fund was $28,000 (2016: $41,000). The Fund’s reserve
as at 30 June 2017 was $0.4 million (2016: $0.4 million).

There were 44,427 (2016: 45,835) CoverPlus Extra policies purchased during the year. CoverPlus Extra is
an optional product that lets self-employed people and non-PAYE shareholder-employees negotiate a
pre-agreed level of lost earnings compensation. Payments of $5.5 million (2016: $5.9 million) relating to
work-related injuries were paid to clients who had purchased weekly compensation under CoverPlus Extra
policies from the Work Account during the year. Non-work injury payments of $13.6 million (2016: $13.2
million) were paid from the Earners’ and Motor Vehicle Accounts.

In the year ended 30 June 2016, levy revenue was increased by an amount of $75.1 million transferred from
the Earners’ Account. This is an adjustment for the Earners’ portion of the credit notes issued for CoverPlus
Extra income from shareholder-employees since the commencement of sales of the product that was
previously charged to the Work Account.

Statement of
performance
and financial
The accompanying notes form part of these financial statements. statements

ANNUAL REPORT 2017 103

Statement of comprehensive revenue and expense and changes in
Account reserves (equity)

TREATMENT INJURY ACCOUNT

For the year ended 30 June 2017

Actual Actual Budget

$M Notes 2017 2016 2017
Levy revenue(i) 278 283 299
Total net levy and other revenue 278 283 299
Investment revenue 221 341 159
Less investment management costs 5 4 4
Net investment revenue 216 337 155
Claims paid(ii) 183 164 180
Increase in outstanding claims liability 7(C) 518 1,167 267
Total claim costs 701 1,331 447
Injury prevention costs 6 3 6
Operating, Shaping Our Future and other costs 29 26 27
Net (deficit) (242) (740) (26)
Total comprehensive revenue and expense for (242) (740) (26)
the year

Account reserve – opening balance (deficit) (1,628) (888) (1,299)

Total comprehensive revenue and expense for (242) (740) (26)
the year
Account reserve – closing balance (deficit) (1,870) (1,628) (1,325)
Outstanding claims liability 5,659 5,141 4,996
Net assets excluding OCL 3,789 3,513 3,671

Notes:

(i) The Treatment Injury Account derives its funds from allocations from the Earners’ Account (in the case
of earners) and the Non-Earners’ Account (in the case of non-earners).

(ii) These funds are applied in accordance with the AC Act in respect of personal injury arising from
medical misadventure suffered on or after 1 July 1992, and personal injury arising from treatment on or
after 1 July 2005.

The accompanying notes form part of these financial statements.

104 ACCIDENT COMPENSATION CORPORATION

Account solvency and capital management
Solvency is presented as a percentage and calculated as the total value of net assets, excluding the
outstanding claims liability (OCL), held in an Account divided by the OCL for that Account. An Account is
considered fully funded if the solvency percentage is greater than, or equal to, 100%.

The AC Act sets a goal of full funding for the Motor Vehicle, Earners’ and Work Accounts and the portion of
the Treatment Injury Account funded out of the Earners’ Account.

Funding policy for the Non-Earners’ Account and the portion of the Treatment Injury Account funded out
of the Non-Earners’ Account is set by the Government. Pre-2001 claims are funded through appropriation
on a pay-as-you-go basis, while post-2001 claims are funded through appropriation on a fully-funded basis
excluding the inclusion of a risk margin on the liability being funded.

The table below shows the solvency percentages for the separate Accounts:
Funding
position
2017 2016 target
Work Account 148.2% 140.0%
Including gradual process claims incurred but not yet made 121.7% 117.2% 105%
Motor Vehicle Account 110.9% 107.8% 105%
Earners’ Account 114.3% 112.8% 105%
Non-Earners’ Account 42.7% 41.9%
Fully funded portion 79.5% 80.2% 88%
Treatment Injury Account 67.0% 68.3%
Earners’ portion 110.9% 110.9% 105%
Non-Earners’ fully funded portion 74.1% 79.6% 88%

As of 30 June 2017, ACC had an overall net liability position, ie its total liabilities exceeded its total assets
by $1.258 billion (2016: liabilities exceeded assets by $1.865 billion). The overall net liability position is driven
by the funding policy for the Non-Earners’ Account and the Non-Earners’ portion of the Treatment Injury
Account as explained above. The financial statements are prepared on a going concern basis, reflecting the
Government’s ongoing support and the long-term nature of its funding policy.

Statement of
performance
and financial
The accompanying notes form part of these financial statements. statements

ANNUAL REPORT 2017 105

Notes to the financial statements
For the year ended 30 June 2017

1. Summary of significant accounting policies

(A) REPORTING ENTITY

Accident Compensation Corporation (ACC) is designated as a Crown Agent under the Crown Entities Act
2004.

ACC provides comprehensive 24-hour, no-fault personal injury cover for all New Zealand residents and
visitors to New Zealand.

ACC has designated itself as a public benefit entity (PBE) for financial reporting purposes.

(B) BASIS OF PREPARATION

The financial statements of ACC have been prepared in accordance with generally accepted accounting
practice in New Zealand (NZ GAAP). The financial statements comply with Tier 1 PBE accounting standards
and have been prepared in accordance with the Accident Compensation Act 2001 (the AC Act) and the
Crown Entities Act 2004.

The financial statements are prepared on a historical cost basis unless otherwise stated. All balances are
expressed in New Zealand dollars and rounded to the nearest million dollars ($M) unless otherwise stated.

Standards and interpretations issued but not yet effective and not early adopted

Standards and amendments, issued but not yet effective that have not been early adopted, and which are
relevant to ACC are:

Financial instruments

In January 2017, the External Reporting Board issued PBE IFRS 9 Financial Instruments. This replaces PBE
IPSAS 29 Financial Instruments: Recognition and Measurement.

PBE IFRS 9 is effective for annual periods beginning on or after 1 January 2021, with earlier application
permitted. The main changes under the standard are:

• new financial asset classification requirements for determining whether an asset is measured at fair value
or amortised cost

• a new impairment model for financial assets based on expected losses, which may result in the earlier
recognition of impairment losses

• revised hedge accounting requirements to better reflect the management of risks.

The timing of ACC adopting PBE IFRS 9 will be guided by the Treasury’s decision on when the Financial
Statements of the Government will adopt PBE IFRS 9. ACC has not yet assessed the effects of the new
standard.

Insurance contracts

In August 2017, the External Reporting Board issued NZ IFRS 17 Insurance Contracts. This replaces
NZ IFRS 4 Insurance Contracts.

NZ IFRS 17 is effective for annual periods beginning on or after 1 January 2021. Currently there is no
equivalent PBE standard, however it is understood that the External Reporting Board will be considering the
applicability for PBEs. ACC has not yet assessed the effects of the new standard.

106 ACCIDENT COMPENSATION CORPORATION

There are no other standards or amendments that have been issued, but are not yet effective, that are
expected to have a significant impact on ACC.

2. Critical accounting judgements, estimates and assumptions

ACC makes estimates and assumptions in respect of certain key assets and liabilities. Estimates and
judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances. The key areas in
which critical estimates are applied are described below.

(A) OUTSTANDING CLAIMS LIABILITY (OCL)

The estimated liability is on a ‘best estimate’ basis. This means there is no deliberate over- or under-
statement of any component of the liability. Due to the uncertainty in the OCL estimate, and the number of
assumptions required in its determination, it is highly likely that actual experience will differ from the stated
estimate. Standard actuarial techniques are used to formulate the central estimate, taking into account
trends in historical claims data, reviewing current conditions that may impact future trends, and scanning
the horizon for possible changes that may affect trends in the future.

Where possible, both the number of claims receiving payments and the average amount of these payments
are analysed separately. When claim numbers are too unstable for this method to be reliable, an analysis of
aggregate payments is undertaken.

The following actuarial valuation techniques are used to project the various benefit types:

• payment per active claim method

• payment decay method

• individual claim projection method.

Some elements of the claims liability are subject to more uncertainty than others. For past injury years, a
higher proportion of the ultimate number of claims for each year will have been reported. These reported
claims will have a longer history of payments and a smaller outstanding amount, all other things being
equal, than claims reported in more recent injury years. Incurred but not reported (IBNR) claims have no
payment history and must be estimated in their entirety. Hence the OCL estimate for more recent injury
years will be subject to more uncertainty.

The general sources of uncertainty include:

• actual future claim closure rates that differ from those expected due to unanticipated changes to Scheme
utilisation rates associated with prior injuries

• actual future claim costs that differ from those expected due to unanticipated inflationary trends and
claim durations

• the actual timing of claim payments differing from those expected

• unanticipated changes in operational processes that affect claim development patterns

• future advances in medicine and treatment that may impact recovery periods, cost structures and Scheme
utilisation

• the fact that ACC legislation is periodically reviewed, and court cases can result in entitlements that are
not anticipated being paid.

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 107

Currently the largest area of uncertainty affecting the OCL is the future costs associated with personal and
social rehabilitation support services provided to individuals experiencing significant disability as a result
of injury, in particular the cost of personal care services whether they be home- or residential-based care.
These may involve anything from helping with daily duties to providing nursing care services. The number
of hours per day, types of service required, provider type and average costs per hour are key assumptions
that need to be projected decades into the future. The estimate carries with it a wider range of uncertainty,
due to the length of the projection period and the variation of disabilities and/or demonstrated independent
participation by the clients.

The estimated future cash payments are discounted using a risk-free rate based on the yield curves of
New Zealand government bond rates.

(B) GRADUAL PROCESS CLAIMS

These claims are a result of injuries that have occurred due to prolonged exposure in the workplace to
conditions that result in some form of harm. The most common examples of such claims are asbestosis (due
to prolonged exposure to asbestos dust in the atmosphere) and hearing loss (due to prolonged exposure to
excessive noise).

Due to the nature of these injuries, many years can pass between exposure to the conditions that result in
harm and the individual receiving treatment or suffering incapacity.

A gradual process claim can be made when a person is regarded as suffering personal injury caused by
work-related gradual process, disease or infection which is in accordance with section 37 of the AC Act.
The claim can be made at the earlier of either the date that the person first receives treatment or the date
that the injury first results in incapacity. Therefore a financial liability is only recognised for gradual process
injury when a claim is made.

The effect of this accounting treatment is that until the injury presents itself such that the person receives
treatment or suffers incapacity and hence is entitled to make a claim, ACC does not record a liability in
the OCL.

However, an assessment of the potential payments under such future claims has been made. The present
value of the obligation for all future gradual process claims not yet made is estimated at $1,356 million (2016:
$1,243 million). This is only for claims arising due to noise-induced hearing loss and exposure to asbestos,
being the types of gradual process claims where sufficient data is available to permit a reasonable estimate
of the obligation.

(C) GOING CONCERN ASSUMPTION

The financial statements have been prepared on a going concern basis.

In the event of a funding shortfall in the Non-Earners’ Account, ACC would seek to secure further funding
through imprest supply or a Parliamentary appropriation; however, there is no ability to enforce the
Government obligation to fund the Account. Alternatively ACC could borrow funds, which would require
approval from the Minister of Finance in order to cover the payments made from the Non-Earners’ Account,
or draw down on its reserves or investment revenue for the Non-Earners’ Account.

108 ACCIDENT COMPENSATION CORPORATION

3. Underwriting result
Underwriting in terms of ACC relates to the core business of collecting levies and paying for accident
compensation and rehabilitation, excluding any investment activities. The below underwriting result is
extracted from the statement of comprehensive revenue and expense:

Motor Non- Treatment

2017 Vehicle Earners’ Earners’ Work Injury 2016
$M Total Account Account Account Account Account Total
Net levy revenue 4,106 552 1,088 1,397 791 278 3,926
Rehabilitation (including treatment) costs
Vocational 92 8 1 53 28 2 88
rehabilitation
Social rehabilitation 647 184 209 91 88 75 590
Medical treatment 712 26 290 281 102 13 669
Hospital treatment 331 21 77 152 58 23 322
Public health acute 477 52 292 100 28 5 469
services
Dental treatment 27 1 14 9 3 – 28
Conveyance for 112 18 58 25 9 2 106
treatment
2,398 310 941 711 316 120 2,272
Compensation costs
Income maintenance 1,113 157 18 523 373 42 1,045
Independence 44 6 20 8 7 3 44
allowances
Lump sums 40 6 6 7 14 7 39
Death benefits 88 31 5 31 16 5 87
1,285 200 49 569 410 57 1,215
Miscellaneous costs 22 3 5 3 5 6 15
Claims paid 3,705 513 995 1,283 731 183 3,502

Claims handling costs 433 42 110 155 100 26 415

Increase (decrease) in outstanding claims liability
Expected change 1,463 260 290 494 100 319 1,236
Effect of claims 787 141 234 85 (62) 389 583
experience and
modelling
Effect of changes in (2,237) (619) (553) (395) (249) (421) 4,889
economic assumptions
Effect of legislative and 1,063 369 290 98 75 231 (374)
policy changes
1,076 151 261 282 (136) 518 6,334
Total claims incurred 5,214 706 1,366 1,720 695 727 10,251
Movement in 110 63 – 19 28 – 103
unexpired risk liability
Other underwriting 181 17 23 49 83 9 150
costs
(Deficit) from (1,399) (234) (301) (391) (15) (458) (6,578)
underwriting activities
Net investment 2,004 566 215 540 467 216 3,210
revenue
Other revenue 2 – – 1 1 – 1 Statement of
performance
Net surplus (deficit) 607 332 (86) 150 453 (242) (3,367) and financial
statements

ANNUAL REPORT 2017 109

4. Net levy revenue
All levy revenue is recognised in the levy period to which it relates. Levy revenue relating to levy periods
that have commenced prior to balance date is accrued if not yet invoiced. This accrual is estimated based
on expected liable earnings at the applicable levy rate with the assumptions that the levy revenue is earned
evenly over the levy period. The proportion of levies not earned at the reporting date is recognised in the
statement of financial position as unearned levy liability.

 $M 2017 2016

Government appropriations 1,231 1,075
Levy revenue 2,899 2,876
(Less):
Levy debts written off (12) (15)
Change in provision for impairment (12) (10)
Total net levy revenue 4,106 3,926
Levy revenue is from exchange transactions.

5. Investment revenue
Investment revenue consists of and is recognised on the following basis:

• dividends on equity securities are recorded as revenue on the ex-dividend date (dividend announcement
date)

• interest revenue is recognised as it accrues

• investment gains represent the realised and unrealised movements in the investment values. Realised
gains/losses occur on the disposal of an investment asset and are calculated as the difference between
the proceeds received and their carrying value. Unrealised gains/losses represent the difference between
the cost of the investment assets and their carrying value at year end.

Each of ACC’s Accounts ‘owns’ a portion of different investment portfolios. These ownership proportions
are adjusted whenever an Account places additional funds into, or withdraws funds from, an investment
portfolio. Investment revenue from each investment portfolio is allocated between the Accounts daily
based on the Accounts’ daily proportionate ‘ownership'. Some derivative positions are allocated directly
between Accounts rather than to investment portfolios, with all associated revenue from these positions
directly allocated to the relevant Accounts.

110 ACCIDENT COMPENSATION CORPORATION

 $M 2017 2016
Investment revenue
Rental revenue from investment properties 18 18
Revenue from concession rights arrangement 5 5

Financial assets at fair value through surplus or deficit (designated upon

initial recognition)
Dividend revenue 430 401
Interest revenue 743 747
Investment gains 965 1,376
2,138 2,524
Financial assets and financial liabilities at fair value through surplus or
deficit (held for trading purposes)
Interest revenue 98 96
Investment (losses) gains (177) 638
(79) 734
Gross investment revenue 2,082 3,281

Direct investment costs

Foreign withholding tax 10 8
Investment property costs 1 2
Other direct investment costs 19 18
Total direct investment costs 30 28
Investment revenue 2,052 3,253
Investment management costs 48 43
Net investment revenue 2,004 3,210
Investment revenue is net of direct investment costs, such as trading costs, to be consistent with the
calculation of investment performance. The other costs excluding direct investment costs are classified as
investment management costs. In the previous year, these were all classified as total investment costs. The
comparative amounts have been amended accordingly.

6. Analysis of operating expenses

Total expenses comprising investment management, injury prevention, Shaping Our Future and operating
costs are allocated to Accounts using an activity-based costing methodology.

(A) EXPENSES BY FUNCTION

$M 2017 2016
Investment management costs 48 43
Injury prevention costs 55 50
Shaping Our Future costs 61 23
Operating costs 495 491
659 607
Other costs 3 1
Total expenses 662 608

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 111

(B) INCLUDED IN THE ABOVE ARE:
$M 2017 2016
Computer expenses 38 38
Professional expenses 23 16
Rental of office premises and equipment 19 19
Travel and accommodation 7 8
Depreciation and amortisation 41 46
Personnel expenditure 320 314
Property, plant and equipment, and intangible assets write-offs 2 1
Restructuring costs 3 1
Other expenditure 209 165
662 608
Personnel expenditure

Personnel expenditure includes salaries, superannuation, contractors’ costs, ACC levies paid and movement
in the provision for employee benefits, but excludes termination benefits which are included in restructuring
costs. Defined contribution superannuation expense for the group was $25.7 million (2016: $24.3 million).

Auditor remuneration

Included in other operating expenses are fees paid to ACC’s auditors (EY) of:

$000 2017 2016

Audit fee 623 628
Independent IT quality assurance services 260 548
Accounting advice – 22
Risk review of remuneration model 4 9
Review in relation to the discontinuation of the Work Account residual levy – 20
Assessment of funding methodology – 16
Educational services – 19
Actuarial survey 2 2
Risk and governance assurance services 12 38
901 1,302
Shaping Our Future transformation programme

2017 2016 2017

$M Actual Actual Budget
Capital expenditure 30 2 59
Operating expenditure 61 23 33
Total 91 25 92
Total expenditure is within the approved budget for the financial year. The programme operating
expenditure is higher than budget while capital expenditure is lower than budget. The adoption of ‘as a
Service’ approach has resulted in a change to the nature for some expenditures, due to ‘Infrastructure as a
Service’ and ‘Software as a Service’ being considered as leased (operating expenditure) rather than owned
(capital expenditure). In addition, external expertise is used to support the programme delivery.

112 ACCIDENT COMPENSATION CORPORATION

7. Insurance disclosures

(A) CLAIMS INCURRED

The table below relates to the claims incurred this financial year. Current year claims relate to risks borne
in the current financial year. Prior year claims relate to a reassessment of the claims assumptions (eg
changes in economic assumptions, risk margin and claims experience) made in all previous financial years,
and include the effects of discounting caused by changes in the discount rate and natural unwinding of the
discount as the claims move one year closer to settlement.

2017 2016
Current Prior Current Prior
 $M year years Total year years Total
Undiscounted 8,807 7,113 15,920 7,692 (8,188) (496)
Discount movement (3,902) (6,804) (10,706) (3,072) 13,819 10,747
Total claims incurred 4,905 309 5,214 4,620 5,631 10,251

(B) ACTUARIAL RESULT

The actuarial view of the underwriting result is summarised as follows:

$M 2017 2016
Net levy revenue 4,106 3,926
Claims incurred
Lifetime cost of new claims anticipated over the year 4,210 4,185
Effect of discount unwind 752 881
Effect of claims experience and modelling 787 583
Effect of changes in economic assumptions (2,237) 4,889
Effect of legislative and policy changes 1,063 (374)
Effect of payments experience 206 (328)
Claims handling costs 433 415
Total claims incurred 5,214 10,251
Movement in unexpired risk liability 110 103
Other underwriting costs 181 150
(Deficit) from underwriting activities (1,399) (6,578)
Net investment revenue 2,004 3,210
Other revenue 2 1
Net surplus (deficit) 607 (3,367)

(C) OUTSTANDING CLAIMS

The OCL consists of expected future payments associated with:

• claims reported and accepted as at the valuation date that remain unsettled as at the valuation date

• claims incurred but not reported (IBNR) to, or accepted by, ACC as at the valuation date

• closed claims that are expected, on the basis of actuarial projections, to be reopened after the valuation date

• the costs of managing reported but unsettled, reopened and IBNR claims.

The accrued OCL is the central estimate of the present value of expected future payments on claims
occurring on or before the balance date, 30 June 2017, plus a risk margin to ensure the accrued liability is
sufficient to meet all the costs of future claim payments 75% of the time.
Statement of
performance
and financial
statements

ANNUAL REPORT 2017 113

Future payments associated with gradual process claims that are not yet reported are not included
in the OCL. ACC’s major exposure to gradual process or latent claims is in respect of hearing loss and
asbestos-related injuries. Section 37 of the AC Act states that a person is considered injured when:

• they first report the incapacity; or

• they first receive medical treatment for the incapacity.

The AC Act effectively defines gradual process claims as being consistent with the ‘claims made’ policies
issued by general insurance entities. That is, clients are covered for a specified contract period, regardless of
when the event occurred, giving rise to the claim. Under ‘claims made’ policies, an insurer only has liability
for reported claims.

(a) Outstanding claims liability (discounted)

The future claim payments are brought to present value as at the valuation date using a risk-free discount rate.

30 June Motor Non- Treatment 30 June

2017 Vehicle Earners’ Earners’ Work Injury 2016
$M Total Account Account Account Account Account Total
Central estimate of 31,465 8,373 6,667 6,533 5,118 4,774 30,471
present value of future
claims payments
Present value of the 1,939 473 389 413 465 199 1,986
operating costs of
meeting these claims
33,404 8,846 7,056 6,946 5,583 4,973 32,457
Risk margin 4,335 1,222 972 807 648 686 4,206
Outstanding claims 37,739 10,068 8,028 7,753 6,231 5,659 36,663
liability
As at beginning of year 36,663 9,917 7,767 7,471 6,367 5,141 30,329
Movement during the 1,076 151 261 282 (136) 518 6,334
year

Current 2,852 528 495 926 666 237 2,570

Non-current 34,887 9,540 7,533 6,827 5,565 5,422 34,093
Total outstanding 37,739 10,068 8,028 7,753 6,231 5,659 36,663
claims liability
(b) Reconciliation of movement in discounted outstanding claims liability

The following analysis reconciles the year-on-year movement of the actuarially assessed OCL by the key
drivers of the movement.

The broad definition of each movement category is:

(i) inflation assumptions – external assumptions made concerning inflationary factors that include labour
cost inflation, average wage inflation, consumer price index (CPI) and risk-free discount rates

(ii) discount rates – estimated future cash payments, which are adjusted in line with expectations of
future inflation, are discounted using a risk-free rate that is based on the yield curves of New Zealand
government bond rates

(iii) claims experience and modelling – changes to actuarial assumptions and/or modelling methods, for
example claims ‘run-off’ patterns and key inflation indicators, to reflect actual experience and/or future
events that may have an impact on the number and size of claims

(iv) payments experience – the difference between actual and projected payments.

114 ACCIDENT COMPENSATION CORPORATION

(v) legislative and policy changes – in 2017 this relates to a pay rise to aged-care and disability workers
(pay equity) as well as paying for the cancelled work (regularisation). In 2016, this relates to the
reversal of judicial rulings

(vi) discount unwind – as prior claims move one year closer to the date of expected payment, the reduction
in the number of years over which discounting takes place is termed as the discount unwind

(vii) claims anticipated over the year – is the expected claim and claims handling costs arising from new
accidents in the year to 30 June 2017. The cost is the present value of projected payments post 30 June
2017 plus the expected payments to be made in the year ended 30 June 2017

(viii) claims payments and handling costs – is the actual claims paid and the actual claims handling costs
incurred during the year ended 30 June 2017.

30 June Motor Non- Treatment 30 June

2017 Vehicle Earners’ Earners’ Work Injury 2016
 $M Total Account Account Account Account Account Total
Outstanding claims 36,663 9,917 7,767 7,471 6,367 5,141 30,329
brought forward
Effect of changes in 1,216 340 302 209 137 228 (1,466)
inflation
Effect of changes in (3,453) (959) (855) (604) (386) (649) 6,355
discount rates
Effect of claims 787 141 234 85 (62) 389 583
experience and
modelling
Effect of payments 206 19 267 (9) (57) (14) (328)
experience
Effect of legislative and 1,063 369 290 98 75 231 (374)
policy changes
Effect of discount 752 204 159 147 135 107 881
unwind
Claims anticipated over 4,643 592 969 1,794 853 435 4,600
the year
Incurred claims 5,214 706 1,366 1,720 695 727 10,251
recognised in the
underwriting result
Claims payments and (4,138) (555) (1,105) (1,438) (831) (209) (3,917)
handling costs
Outstanding claims 37,739 10,068 8,028 7,753 6,231 5,659 36,663
carried forward

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 115

(c) Claims development table

The following table shows the development of undiscounted claim cost estimates for the seven most recent
accident years.

Accident year
$M 2011 2012 2013 2014 2015 2016 2017 Total
Estimate of ultimate
claim costs:
At end of accident year 7,517 6,877 6,794 7,264 7,192 6,884 7,914
One year later 6,288 6,118 6,608 6,547 6,682 7,272 –
Two years later 5,890 5,546 5,762 5,823 7,062 – –
Three years later 5,310 4,979 5,007 6,252 – – –
Four years later 5,070 4,458 5,180 – – – –
Five years later 4,596 4,780 – – – – –
Six years later 4,864 – – – – – –
Current estimate 4,864 4,780 5,180 6,252 7,062 7,272 7,914 43,324
of cumulative claim
costs
Cumulative payments (1,550) (1,540) (1,618) (1,739) (1,800) (1,667) (1,030) (10,944)
Outstanding claims – 3,314 3,240 3,562 4,513 5,262 5,605 6,884 32,380
undiscounted
Discount (19,586)
Claims handling costs 2,188
Prior to 2011 and other claims 22,702
Short tail outstanding claims 55
Outstanding claims – per statement of financial position 37,739
(d) Key assumptions

An independent actuarial estimate by PricewaterhouseCoopers, consulting actuaries, has been made of

the future expenditure relating to accidents that occurred prior to balance date, whether or not the claims
have been reported to or accepted by ACC. The PricewaterhouseCoopers actuarial report is signed by Mr
Paul Rhodes, Fellow of the Institute and Faculty of Actuaries (UK) and Mr Michael Playford, Fellow of the
Institute of Actuaries of Australia. Mr Rhodes and Mr Playford are also Fellows of the New Zealand Society
of Actuaries.

The actuarial estimate has been made based on actual experience to 30 June 2017. The calculation of the
OCL has been made in accordance with the standards of the New Zealand Society of Actuaries’ Professional
Standard No. 4: General Insurance Business and PBE IFRS4 Insurance Contracts.

In determining the actuarial estimate, the independent actuaries have relied on information supplied by
ACC. The independent actuaries have indicated they are satisfied as to the nature, sufficiency and accuracy
of the information provided.

The table in Note 7(C), Outstanding claims liability (discounted), shows the actuarial estimate of the
present value of the OCL that will be payable in future years. The actual outcome is likely to range about
this estimate and, like any such forecast, is subject to uncertainty.

116 ACCIDENT COMPENSATION CORPORATION

The main long-term assumptions used in the above estimates are:

2017 2016
Year 1 Beyond Year 1 Year 1 Beyond Year 1
% pa % pa % pa % pa
Discount rate 1.97% 2.36% to 4.75% 2.12% 1.95% to 4.75%
Inflation rates:
weekly compensation 2.7% 2.7% to 3.0% 2.5% 2.5% to 3.0%
impairment benefits 2.2% 1.7% to 2.0% 0.4% 1.5% to 2.0%
social rehabilitation benefits 1.9% 1.9% to 2.2% 1.7% 1.7% to 2.2%
hospital rehabilitation 1.9% 1.9% to 2.2% 1.7% 1.7% to 2.2%
benefits
short-term medical costs 1.9% 1.9% to 2.2% 1.7% 1.7% to 2.2%
other medical costs 1.9% 1.9% to 2.2% 1.7% 1.7% to 2.2%
Superimposed inflation:
social rehabilitation benefits 19.0% 1.2% to 7.5% 5.7% 2.8% to 5.9%
(care packages)(i)
social rehabilitation benefits 5.1% 1.0% 5.1% 1.0% to 5.1%
(serious injury capital
expenditure)(ii)
hospital rehabilitation 4.0% 4.0% 5.0% 4.0% to 5.0%
benefits(iii)
short-term medical costs 3.0% 3.0% 4.0% 3.0% to 4.0%
(general practitioners)
short-term medical costs 2.0% 2.0% 5.8% 5.0% to 5.8%
(radiology)
short-term medical costs 2.0% 2.0% 2.0% 2.0%
(physiotherapists)
other medical costs 2.5% 2.5% 3.3% 2.5% to 3.3%
Weighted average risk margin 13.0% 13.0%
Weighted average claims 6.2% 6.5%
handling costs ratio
Notes:

(i) Growth in liability due to changes in care packages: movement of care services between
non-contracted and agency care, refinements of care packages and increases in care rates are expected
to have superimposed inflationary effect.

(ii) Capital expenditure: motor vehicle and housing modifications, along with other capital expenditure
provided to those seriously disabled due to an accident, have been increasing significantly over the
past years.

(iii) Predominantly elective surgery costs.

(i) Process used to determine assumptions

Discount rate

The risk-free rates are prescribed by the Treasury and based predominantly on the yield curve of the
New Zealand government bond rates. The longest term of a current non-inflation-indexed New Zealand
government bond is approximately 20 years from now. Discount rates beyond that are smoothed over a
minimum of 10 years, with a maximum increment of 0.05% per annum, to eventually attain a long-term,
risk-free discount rate of 4.75%. This long-term rate is based on an examination of average New Zealand
government bonds over an extended period of time. This discounting methodology is consistent with that
Statement of
applied by the Treasury in valuing the liabilities on all Crown accounts. performance
and financial
statements

ANNUAL REPORT 2017 117

The projected cash flows were discounted using a series of forward discount rates at balance date derived
from the Treasury’s risk free rates. The equivalent single effective discount rate, taking into account ACC’s
projected future cash flow patterns, is 3.80% (2016: 3.22%).

Inflation rates

Short-term consumer price index (CPI) inflation rates are prescribed by the Treasury. Assumptions for
the labour cost index (LCI) and average wage earnings (AWE) are based on their historical relationship to
the CPI. Long-term inflation is determined by using an assumption about the gap between inflation and
interest rates.

Superimposed inflation

Superimposed inflation is the inflationary component in excess of annual movement in the LCI.
Assumptions for superimposed inflation were set with reference to past observed superimposed inflation,
and allowance for expectations of the future.

Risk margin

ACC has added a risk margin to the central estimate of the discounted future claims payments to provide
for a higher degree of certainty that the liability for outstanding claims, at balance date, will be adequate to
cover possible adverse developments.

The overall risk margin was determined allowing for the relative uncertainty of the outstanding claims
estimate. Uncertainty was analysed for each benefit type, taking into account potential uncertainties
relating to the claims experience, the insurance environment, and the impact of legislative reform.

The assumptions regarding uncertainty were applied to the central estimates in order to arrive at an overall
provision that allows for a 75% probability of sufficiency in meeting the actual amount of liability to which it
relates.

Claims handling costs

The allowance for claims handling costs is determined by analysing claims-related costs incurred in the
accounting year and expressing these expenses as percentages of claims paid in the same year. These are
used as the basis for deriving the percentages that are applied to future projected payments to estimate
future projected expense payments.

118 ACCIDENT COMPENSATION CORPORATION

(ii) Sensitivity to changes in key assumptions

The impact of changes in key assumptions on the consolidated net surplus (deficit) are shown in the
following table. Each change, which includes the risk margin, has been calculated in isolation to other
changes.

2017 2016
Impact on Impact on
net surplus net surplus
 $M Movement (deficit) (deficit)
Discount rate +1.0% 5,114 5,196
-1.0% (6,826) (6,982)
Inflation rate +1.0% (7,031) (7,118)
-1.0% 5,342 5,380
Long-term gap between discount rate and inflation +0.75% 534 162
rates -0.75% (910) (920)
Superimposed inflation (excluding social +1.0% (790) (835)
rehabilitation for serious injury claims) -1.0% 594 613
Discounted mean term +1 year 410 191
-1 year (419) (196)
Superimposed inflation for social rehabilitation for +1.0% (3,233) (3,336)
serious injury claims after two years -1.0% 2,384 2,445
Long-term continuance rates for non-fatal weekly +1.0% (936) (968)
compensation -1.0% 781 803
The approach to determine the discounted mean term sensitivity has changed this year. The new approach
takes into account the average duration of the cash flows and the superimposed inflation for that payment
type. The comparative amounts of the impact have been amended to be consistent with this new approach.

(D) RISK MANAGEMENT POLICIES AND PROCEDURES

The financial condition and operations of ACC are affected by a number of key risks including insurance
risk, credit risk (refer to Notes 11 and 13), liquidity risk (refer to Note 13), compliance risk and operational
risk. ACC’s approach to managing risk is set out in the governance and managing risks section in the annual
report. ACC’s policies and procedures in respect of managing these risks are set out below.

(i) Risks arising from the Scheme’s operations and the policies for mitigating those risks

ACC has an objective to manage insurance risk in order to maintain fair and stable levies over time to allow
the business to plan with certainty. The key aspects of the process established in the risk management
framework to mitigate risk include:

• the maintenance and use of management information systems that provide up-to-date, reliable data
relevant to the risks to which the business is exposed

• actuarial and business management reporting models, using information from the management
information systems, which are used to monitor claims patterns. Past experience, relevant industry
benchmarks, and statistical methods are used as part of the process

• the financial consequences of catastrophic events (eg earthquake, tsunami) which are estimated each
year. The cost of purchasing reinsurance and the effect on levy rates of post-funding such events are
considered. At this time, ACC does not hold any catastrophe reinsurance cover. Should such an event
occur, the impact on levies to post-fund this is not expected to be significant.

(ii) Terms and conditions of accident cover

Statement of
The terms and conditions of personal injury cover are determined by the AC Act. ACC operates in performance
compliance with its governing legislation. and financial
statements

ANNUAL REPORT 2017 119

(iii) Concentration of risk

The ACC Scheme covers the risks related to the provision of rehabilitation and compensation to people in
New Zealand who have injuries as a result of accidents.

(iv) Credit rating

ACC is not required to have a credit rating.

(E) UNEARNED LEVY LIABILITY

ACC recognises levy revenue that will be earned up to the end of the levy year for the three levy-funded
Accounts. The levy year runs from 1 April to 31 March for the Earners’ and Work Accounts, and from 1 July to
30 June for the Motor Vehicle Account. This means that, as of 30 June 2017, ACC has recognised levy revenue
for the period 1 July 2017 to 31 March 2018 for both the Earners’ and Work Accounts.

For the Motor Vehicle Account, ACC recognises vehicle registration levy revenue for vehicle registrations
that expire after 30 June 2017, and petrol levy revenue that can be expected to be received after 30 June 2017
based on the number and expiry date of vehicle registrations purchased up to 30 June 2017 but which expire
after 30 June 2017.

Motor
2017 Vehicle Earners’ Work 2016
$M Total Account Account Account Total
Opening balance at 1 July 1,873 215 1,101 557 1,723
Deferral of levies recognised in the year 1,870 143 1,178 549 1,873
Earnings of levies recognised in previous years (1,873) (215) (1,101) (557) (1,723)
Closing balance at 30 June 1,870 143 1,178 549 1,873

Current 1,870 143 1,178 549 1,872

Non-current – – – – 1
Total unearned levy liability 1,870 143 1,178 549 1,873

(F) UNEXPIRED RISK LIABILITY

At each balance date, ACC assesses whether the levy revenue recognised in the current period is sufficient
to cover all expected future cash flows relating to future claims received in the current period. This
assessment is referred to as the liability adequacy test and is performed for each Account. Gradual process
claims are excluded from the liability adequacy test.

If levies are insufficient to cover the expected future claims plus a risk margin, then it is deemed to be
deficient. The entire deficiency is recognised immediately in surplus or deficit. The deficiency is recorded in
the statement of financial position as an unexpired risk liability.

The expected future claims is determined as the present value of the expected future cash flows relating to
future claims. ACC applies a risk margin to achieve the same probability of sufficiency for future claims as is
achieved by the estimate of the claims liability.

120 ACCIDENT COMPENSATION CORPORATION

 Motor
2017 Vehicle Earners’ Work 2016
 $M Total Account Account Account Total
Opening balance at 1 July 570 20 435 115 467
Recognition of additional unexpired risk 680 83 454 143 570
liability in the period
Release of unexpired risk liability recorded in (570) (20) (435) (115) (467)
previous periods
Closing balance at 30 June 680 83 454 143 570
Calculation of deficiency
Unearned levy liability as reported in the 1,870 143 1,178 549 1,873
statement of financial position
Adjustment(i) (107) – (107) – (118)
Adjusted unearned levy liability 1,763 143 1,071 549 1,755
Central estimate of present value of expected 2,195 199 1,370 626 2,089
future cash flows arising from future claims
Risk margin(ii) 248 27 155 66 236
Present value of expected future cash flows 2,443 226 1,525 692 2,325
for future claims
Total unexpired risk liability 680 83 454 143 570

Current 680 83 454 143 570

Non-current – – – – –
Total unexpired risk liability 680 83 454 143 570
Notes:

(i) This excludes the earners’ portion of treatment injury in the Earners’ Account as the liabilities that are
assessed exclude those arising from medical misadventure.

(ii) The risk margins determined for the unexpired risk liability relates to future claims payments for
injuries that have yet to happen. The risk margins are consistent with those used for the outstanding
claims liability valuation.

A liability adequacy test was not performed for the Non-Earners’ Account as there was no unearned levy
liability as at 30 June 2017 for this Account.

8. Investment assets
ACC holds investment assets to generate investment income that matches the expected future cash flows
arising from insurance liabilities. All assets held in the investment portfolios are designated as ‘assets
backing insurance liabilities’.

All investment assets, other than investment intangible assets, are designated as financial assets at
fair value through surplus or deficit. Investment intangible assets are carried at cost less accumulated
amortisation.

Fair value for investment assets is determined as follows:

• listed shares and unit trusts are valued at the quoted prices

• non-listed equity investments (private equity and venture capital) are initially recognised at cost
and adjusted for performance of the underlying business since purchase. This is consistent with the
International Private Equity and Venture Capital Valuation Guidelines
Statement of
• unlisted unit trust investments are valued based on the exit price (the value ACC would receive if the unit performance
trusts were sold) and financial
statements

ANNUAL REPORT 2017 121

• bonds and other fixed interest investments are valued using quoted yield curves

• for investments without active markets or quotable inputs, fair value is determined using the most
appropriate valuation technique. These techniques include reference to substantially similar investments
with quotable prices, discounted cash flow analysis and option pricing models that incorporate as much
supportable market data as possible and keeping judgemental inputs to a minimum

• investment properties are valued annually by registered property valuers.

$M 2017 2016
New Zealand deposits at call 558 424
Overseas deposits at call 253 603
New Zealand government securities 12,344 10,307
Other New Zealand debt securities 4,851 5,716
Overseas debt securities 6,956 6,415
New Zealand equities 3,712 3,603
Australian equities 2,362 2,116
Overseas equities 5,415 5,129
Other investments 34 43
36,485 34,356
Investment properties 305 269
Investment intangible assets 46 48
Total investments 36,836 34,673

Current 1,769 2,258

Non-current 35,067 32,415
Total investments 36,836 34,673
(a) Investment properties

Investment properties are properties that ACC holds for rental revenue and capital gains. ACC is not the
tenant of any properties it owns for investment purposes.

 $M 2017 2016

Opening balance as at 1 July 269 247
Additions 4 –
Disposals – (7)
Net gains from revaluations 32 29
Closing balance as at 30 June 305 269

Current – –
Non-current 305 269
Total investment properties 305 269
The investment property market valuations have been determined by members of the New Zealand
Institute of Valuers, who are independent valuers of Colliers International New Zealand Limited. The
properties are valued under a combination of the capitalisation approach, the discounted cash flow method
and direct comparison with prices for properties of a similar nature. Investment properties are revalued
annually.

(b) Investment intangible asset

ACC recognises an intangible asset arising from a concession rights arrangement where ACC has the right
to charge for use of a car park facility. The intangible asset is carried at cost less accumulated amortisation
and accumulated impairment.

The concession rights were acquired in 2013 and will expire in 2037. Amortisation is calculated on a
straight-line basis over the period which ACC is able to charge the public for the use of the facilities.

122 ACCIDENT COMPENSATION CORPORATION

 $M 2017 2016
Year ended 30 June
Opening net carrying amount 48 51
Amortisation charge (2) (3)
Closing net carrying amount 46 48
At 30 June
At cost 56 56
Accumulated amortisation (10) (8)
Net carrying amount at 30 June 46 48
(c) Repurchase agreements

Securities dealt under repurchase agreements are included within investments classified as financial
assets at fair value through surplus or deficit. These securities are subject to fully collateralised security
lending transactions. Cash collateral received of $474 million (2016: $594 million) from these transactions
is invested, and the liability to repurchase the investments is accrued in unsettled investment transactions
(refer to Note 15).
2017 2016
Value of Value of Value of Value of
transferred associated transferred associated
$M assets liabilities assets liabilities
Nature of transaction
New Zealand equities – share lending 3 3 – –
New Zealand government securities – repurchase 474 474 594 595
agreements
477 477 594 595

9. Derivative financial instruments

Derivative financial instruments form part of the actively managed investment portfolio. ACC uses various
derivative financial instruments such as foreign currency contracts, interest rate swaps and futures to
manage its exposure to movements in exchange rates, interest rates and equity market prices. Refer to Note
13 for further explanation of ACC’s investment risks and how these are addressed.

The use of derivative financial instruments is covered by investment policies which control the risk
associated with such instruments.

All derivative financial instruments are classified as ‘held for trading‘ and valued at fair value through
surplus or deficit. Fair value for derivative financial instruments is determined as follows:

• forward foreign currency contracts are valued with reference to quoted forward exchange rates and yield
curves derived from quoted interest rates with similar maturity profiles

• interest rate swaps are measured at the present value of future cash flows discounted based on the
applicable yield curves derived from quoted interest rates

• cross-currency interest rate swaps are valued using quoted market yields and exchange rates at balance
date

• futures contracts are valued using quoted prices

• credit default swaps are valued using discounted cash flow models that incorporate the default rate and
credit spread of the underlying entity or index.

Derivatives are reported in the statement of financial position as assets when their fair value is positive and
Statement of
as liabilities when their fair value is negative. performance
and financial
statements

ANNUAL REPORT 2017 123

 2017 2016
Fair value Fair value Fair value Fair value
 $M assets liabilities assets liabilities
Interest rate swaps 272 50 651 18
Credit default swaps 4 – 1 2
Cross-currency interest rate swaps 39 10 35 4
Forward foreign currency contracts 196 14 162 20
Futures contracts 8 4 28 8
Total derivative instruments 519 78 877 52

Current 205 18 197 30

Non-current 314 60 680 22
Total derivative instruments 519 78 877 52
At balance date, the principal or contract amounts outstanding were:

 $M 2017 2016

Interest rate swaps 5,927 7,126
Credit default swaps 206 173
Cross-currency interest rate swaps 1,070 1,030
Forward foreign currency contracts 10,857 9,221
Futures contracts – long 739 1,030
Futures contracts – short (637) (202)
Options – 276

10. Cash and cash equivalents

Cash and cash equivalents exclude items held for investment purposes within the reserves portfolio and
not used for short-term cash needs. Cash and cash equivalents are considered to be cash on hand, current
accounts with banks, deposits held on call with banks, and other short-term highly liquid investments with
original maturities of three months or less, net of outstanding bank overdrafts. The carrying values of these
items are equivalent to their fair values.

 $M 2017 2016

Cash (overdraft) at bank (2) (2)
Investment operational cash
Overnight call deposits 15 27
Deposits at call 80 50
New Zealand short-term fixed interest securities – 207
Total cash and cash equivalents 93 282
The effective interest rate at 30 June 2017 on overnight call deposits was 1.8% (2016: 2.4%) and on deposits
at call was 3.2% (2016: 2.4%).

124 ACCIDENT COMPENSATION CORPORATION

11. Receivables
Receivables are recognised at fair value, which is approximated by taking the initially recognised amount
and reducing it for impairment as appropriate.

 $M 2017 2016

Levy debtors 87 119
Motor vehicle levy receivable(i) 28 26
Earners’ levy receivable 2 27
Total levy receivables 117 172
Client debtors(ii) 3 5
Unsettled investment transactions 54 91
Dividends receivable 26 24
Prepayments 14 23
Sundry debtors 4 6
Total non-levy receivables 101 149
Total receivables 218 321

Current 213 321

Non-current 5 –
Total receivables 218 321

NOTES:
(i) Motor vehicle levy receivable consists of:

• the amount collected by the New Zealand Transport Agency from motor vehicle licensing that is
due to ACC

• the amount collected by the New Zealand Customs Service for the levy portion of the excise duty
on petrol that is due to ACC in the first week of the following month.

(ii) Client debt results when an overpayment on a claim has been recognised and is unable to be
immediately repaid.

At 30 June, the ageing analysis of the levy receivables is as follows:

 $M 2017 2016

Current 82 125
Past due 1-30 days 16 19
Past due 31-60 days 7 6
Past due > 60 days 12 22
Total 117 172
Payment arrangements are in place for those receivables that are past due but not considered impaired.

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 125

Levy receivables above are presented net of provision for credit losses and impairment. Movement in the
provision for credit losses and impairment during the reporting period was as follows:

$M 2017 2016
Levy receivables 215 258
Less provision for credit losses and impairment 98 86
117 172

Provision for credit losses and impairment

Opening balance 86 76
Additional provision made during the year 12 10
Closing balance 98 86
The changes in provisions for credit losses and impairment for levy debtors have been charged against levy
revenue.

All non-levy receivables that are financial assets are considered to be current and not impaired. The total of
current non-levy receivables is $85.1 million (2016: $126.3 million).

All receivables are from exchange transactions.

12. Accrued levy revenue

Levies required to fund the Work Account are invoiced directly to employers or self-employed persons based
on their respective liable earnings at the applicable levy rate. Earner levies of shareholder-employees and
the self-employed are also invoiced directly. Earner levies of employee earners are collected within the pay-
as-you-earn (PAYE) system and are paid to ACC by Inland Revenue.

Accrued levy revenue for the Work and Earners’ Accounts are estimated by using their respective expected
liable earnings and average levy rate.

$M 2017 2016
Motor Vehicle Account 62 75
Earners’ Account 1,283 1,199
Work Account 763 753
Total accrued levy revenue 2,108 2,027

Current 2,108 2,027

Non-current – –
Total accrued levy revenue 2,108 2,027
ACC recognises and accrues levy revenue up to the end of the levy year for the three levy-funded Accounts.
The levy year runs from 1 April to 31 March for the Earners’ and Work Accounts and from 1 July to 30 June for
the Motor Vehicle Account.

The accrued levy revenue at 30 June 2017 therefore includes revenue for the period 1 July 2017 to 31 March
2018 for the Earners’ and Work Accounts as well as uninvoiced revenue for levy periods up to 30 June 2017.

126 ACCIDENT COMPENSATION CORPORATION

13. Financial risk management

(A) FINANCIAL INSTRUMENT CLASSIFICATION

Financial instruments held by ACC are categorised as follows:

 $M 2017 2016

Financial assets designated as at fair value through surplus or deficit
Cash and cash equivalents (Note 10) 93 282
Receivables (Note 11) 202 298
Investments (Note 8) 36,485 34,356
Financial assets at fair value through surplus or deficit held for trading
Derivative financial assets (Note 9) 519 877
Financial liabilities at fair value through surplus or deficit held for trading
Derivative financial liabilities (Note 9) 78 52
Financial liabilities measured at amortised cost
Payables (Note 13(E)) 687 913

(B) FINANCIAL RISK MANAGEMENT OBJECTIVES

Each of ACC’s five Accounts allocates its investment funds between an investment in ACC’s short-term
operational cash account and its own longer-term reserves portfolio, depending on that Account’s future
cash flow needs. The operational cash portfolio is used to meet operational needs such as paying claims
and expenses. When the Accounts allocate money into the various investment markets (each designated
‘asset classes’), the money in each asset class is pooled from all Accounts and managed collectively to
ensure operational efficiency and fairness between Accounts. The percent an ‘asset class’ is owned by
each Account is monitored and updated when each Account contributes or withdraws money from the
investment portfolios.

The main financial risks that ACC is primarily exposed to are market, credit and liquidity risks.

ACC consciously chooses to incur many of these risk exposures through the investment portfolios. These
risks either provide a natural offset to risks inherent in the outstanding claims liability or because ACC
expects to enhance returns through prudent exposure to market risks. When ACC does not wish to incur
the above risk in the Reserves portfolio it will seek to reduce exposure to these risks using a variety of
methods. These methods include selling investments currently exposed to these risks, buying investments
with offsetting risk exposures, and the use of derivative financial instruments. Market risk (which comprises
interest rate, foreign exchange and other risks) is managed for all portfolios through the investment
guidelines which ensure that portfolio managers maintain their portfolios within defined market exposure
limits. These limits include limits on percentage weight of any particular company in the portfolio relative
to its benchmark weight; limits on aggregate investment in companies not represented in the benchmark;
limits on the maximum percentage shareholding in any individual company; ratings-related credit limits
on both a per-issuer and aggregate basis; duration limits relative to the duration of the benchmark; and
maximum exposure limits to single entities. Compliance with the investment guidelines is reviewed
by ACC’s Investment Risk and Compliance group on a daily basis, and by the internal auditors on a
half-yearly basis.

Market risk exposures are measured in a number of different ways, specific to the types of risk being
measured. In some cases, more than one measure of risk is used, recognising the fact that all forms of
investment risk measurement are imperfect.

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 127

(C) MARKET RISK
(i) Interest rate risk

The interest rate exposures of the investment portfolios and the operational cash portfolio are managed
through asset allocation between asset classes; through the selection of physical securities within the
asset class sub-portfolios; through the use of interest rate swaps within portfolios; and through the use of
interest rate swaps as an asset allocation overlay. Other derivative financial instruments may also be used
to manage the interest rate exposures of the investment portfolios and the operational cash portfolio.

Interest rate risk affects ACC’s investments and the outstanding claims liability of each Account. For each
Account, ACC would expect investment gains and an increase in the outstanding claims liability to result
from declines in interest rates, investment losses, and a decrease in outstanding claims liability to result
from rises. However, the corresponding movements in ACC’s outstanding claims liabilities (due only to
interest rate movements) would be far more significant than the movement in the value of investments.
Hence, investment gains or losses arising from changes in interest rates will tend to only partially offset a
corresponding revaluation of ACC’s claims liabilities.

Under interest rate swap contracts, ACC agrees to exchange the difference between fixed and floating rate
interest payments calculated on agreed notional principal amounts. Such contracts enable ACC to manage
its interest rate risk and create synthetic fixed-rate bonds from its investment in variable rate debt.

Sensitivity analysis

As at 30 June 2017, if the interest rate at the beginning of the financial year had been 1% higher/lower and
held constant throughout the year with all other variables remaining constant, the consolidated net surplus
(deficit) would have moved as per the table below. Any change in the net surplus (deficit) for the period
would result in a corresponding movement in equity.

2017 2016
Impact on Impact on
Change in net surplus net surplus
interest (deficit) (deficit)
Fair value interest risk rate % $M $M
Long-term New Zealand dollar interest rates +1.0 (2,353) (2,075)
Long-term New Zealand dollar interest rates -1.0 2,712 2,285
The above only shows the impact of changes in interest rates on ACC’s investment portfolios. Changes
in interest rate also have an impact on the outstanding claims liability. Refer to Note 7(C)(d)(ii) for this
sensitivity analysis.

(ii) Foreign exchange risk

Foreign exchange risk is the risk that the value of ACC’s investment portfolio could be affected by a
change in foreign exchange rates. ACC is exposed to foreign exchange risk principally due to its holdings of
foreign currency denominated investments. ACC partially offsets these exposures by entering into foreign
currency contracts for forward sales of foreign currencies against the New Zealand dollar and longer-term,
cross-currency interest rate swaps.

Benchmark ranges of foreign exchange exposure are established by the Investment Committee for each
Account. Accounts can move within these benchmark ranges but action must be taken if exposure exceeds
these ranges. These benchmark exposures are designed to align with ACC’s high-level objective of finding
an appropriate balance between minimising risk while maximising expected return.

All foreign exchange contracts held by ACC have remaining terms of 12 months or less. While the
cross-currency interest rate swaps have maturities out to seven years, the floating interest rates on these
swaps are reset every three months.

128 ACCIDENT COMPENSATION CORPORATION

Sensitivity analysis

The following sensitivity analysis shows the impact on the consolidated net surplus (deficit) of a reasonably
possible change of 10% in the New Zealand dollar against the respective major currencies and held constant
throughout the year, with all other variables remaining constant. Any change in the net surplus (deficit) for
the period would result in a corresponding movement in equity.

2017
$M AUD USD EUR GBP KRW JPY HKD OTHER
Impact on net surplus
(deficit)
10% increase 4 (146) (37) (19) (13) (21) (19) (42)
10% decrease (4) 178 46 24 16 26 24 50

2016
$M AUD USD EUR GBP KRW JPY HKD OTHER
Impact on net surplus
(deficit)
10% increase (12) (198) (37) (29) (6) (17) (13) (40)
10% decrease 14 241 46 36 7 20 16 49
(iii) Other price risk

ACC invests in equities and unit trusts, and considers the risk of these from a long-term perspective.
Changes in the market price of equity and unit trust investments:

• will often reflect a true change in the fair value

• affect the value that ACC could realise for these investments if it chose to sell them in the short term

• will be reflected in the valuation carried in ACC’s statement of financial position and the investment
revenue reported in ACC’s statement of comprehensive revenue and expense.

Sensitivity analysis

The table below details the sensitivity to a change of 10% in the market value of listed and unlisted equity
investments to the consolidated net surplus (deficit) at reporting date, with other variables held constant.
Any change in the net surplus (deficit) for the period would result in a corresponding movement in equity.

2017 2016
Impact on Impact on
Movement net surplus net surplus
$M % (deficit) (deficit)
Global equities +10 541 513
-10 (541) (513)
New Zealand equities +10 330 348
-10 (330) (348)
Private equities +10 45 15
-10 (45) (15)
Australian equities +10 232 210
-10 (232) (210)

(D) CREDIT RISK

Credit risk refers to the risk that a counterparty will default on its contractual obligations, resulting in
financial loss to ACC. Credit risk only applies to debt instruments, derivatives in gain, receivables, and a Statement of
selection of other assets. performance
and financial
statements

ANNUAL REPORT 2017 129

For internally managed portfolios, the Investment Committee has approved an authorised set of credit
criteria (and in the case of New Zealand banks, an authorised list of bank counterparties) which include
credit limits and portfolio limits. These credit limits are designed to limit ACC exposure to counterparties
with a high risk of defaulting while at the same time allowing ACC to take on appropriate levels of risk while
maximising investment returns. The maximum combined debt and equity exposure that ACC may have
to any single counterparty with internally managed portfolios, other than the New Zealand Government
and certain authorised banks and large local authorities, is 3% of the value of ACC’s reserves portfolios.
Investment in unrated debt is allowed if approved by ACC’s Credit Committee. ACC’s exposure and the
credit ratings of its counterparties are continuously monitored.

Transactions involving derivative financial instruments are undertaken with authorised banks and executed
in accordance with International Swaps and Derivatives Association documentation.

The credit ratings used in the table below relate to each individual security’s credit rating. Where a security
does not have an individual credit rating, the issuer’s credit rating is used. In determining the credit ratings,
the primary source used is Standard & Poor’s.

2017
Below Not
$M AAA AA A BBB BBB rated Total
Cash and cash equivalents – 38 25 30 – – 93
Deposits at call – 427 234 124 – 26 811
Other New Zealand debt 960 2,193 493 875 – 330 4,851
securities
Overseas debt securities 5,272 133 524 852 163 12 6,956
New Zealand government 90 12,254 – – – – 12,344
securities
Interest rate swaps – 304 1 1 – 5 311
Forward foreign currency – 112 67 16 1 – 196
contracts
Receivables – – 75 – – 127 202
Accrued levy revenue – – – – – 2,108 2,108
6,322 15,461 1,419 1,898 164 2,608 27,872
ACC has an additional exposure of $205.5 million with regard to the credit default swaps. This is the
potential liability faced if the underlying entity defaults on its contractual obligations, which ACC will then
be obliged to pay (2016: $173.1 million).

2016
Below Not
$M AAA AA A BBB BBB rated Total
Cash and cash equivalents – 120 95 67 – – 282
Deposits at call – 311 716 – – – 1,027
Other New Zealand debt 1,491 2,800 701 545 – 179 5,716
securities
Overseas debt securities 4,654 317 550 703 183 8 6,415
New Zealand government – 10,307 – – – – 10,307
securities
Interest rate swaps – 637 – 47 – 2 686
Forward foreign currency – 115 43 1 – 3 162
contracts
Receivables – – – – – 298 298
Accrued levy revenue – – – – – 2,027 2,027
6,145 14,607 2,105 1,363 183 2,517 26,920

130 ACCIDENT COMPENSATION CORPORATION

(E) LIQUIDITY RISK
Liquidity risk is the risk that ACC may not be able to raise cash when required and on acceptable terms. The
group maintains sufficient liquid assets to cover obligations and unforeseen expenses.

The table below summarises the maturity profile of the financial liabilities of the group. The amounts
disclosed in the table are the contractual undiscounted cash flows for payables and estimated cash flows for
the uncalled private equity commitments.

At 30 June 2017 Greater

Less than Between Between than
 $M 1 year 1-2 years 2-5 years 5 years
Payables 687 – – –
Uncalled private equity commitments 27 27 41 14

At 30 June 2016 Greater

Less than Between Between than
 $M 1 year 1-2 years 2-5 years 5 years
Payables 913 – – –
Uncalled private equity commitments 6 6 9 3
The table below summarises the cash flows for all derivative instruments held by ACC. The amounts
disclosed in the table are the contractual undiscounted cash inflows (outflows). The derivatives have been
classified based on their settlement terms. The gross settled derivatives are the forward foreign exchange
and cross-currency swaps. All other derivatives are classified as net settled derivatives.

At 30 June 2017 Greater

Less than Between Between than
 $M 1 year 1-2 years 2-5 years 5 years
Net settled derivatives – inflows (outflows) 100 96 286 191
Gross-settled derivatives – cash inflows 11,067 21 55 43
Gross-settled derivatives – cash outflows (10,878) (13) (34) (28)

At 30 June 2016 Greater

Less than Between Between than
 $M 1 year 1-2 years 2-5 years 5 years
Net settled derivatives – inflows (outflows) 127 93 260 231
Gross-settled derivatives – cash inflows 9,391 19 53 53
Gross-settled derivatives – cash outflows (9,237) (7) (20) (27)

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 131

(F) FAIR VALUE HIERARCHY
The table below analyses financial instruments carried at fair value at the reporting date by the level in the
fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the
values recognised in the statement of financial position.

The three levels of fair value measurement have been defined as follows:

• Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities

• Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (ie as prices) or indirectly (ie derived from prices)

• Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable
inputs).

2017
$M Level 1 Level 2 Level 3 Total
Financial assets
Derivative financial instruments
Interest rate swaps – 272 – 272
Credit default swaps – 4 – 4
Cross-currency swaps – 39 – 39
Forward foreign currency contracts – 196 – 196
Futures 8 – – 8
8 511 – 519
Financial assets designated at fair value through
surplus or deficit
New Zealand equities 3,271 – 441 3,712
New Zealand government securities – 12,344 – 12,344
New Zealand debt securities – 4,520 331 4,851
Australian equities 2,304 19 39 2,362
Overseas equities 5,415 – – 5,415
Overseas debt securities – 6,956 – 6,956
Other investments – – 34 34
10,990 23,839 845 35,674
10,998 24,350 845 36,193
Financial liabilities
Derivative financial instruments
Interest rate swaps – (50) – (50)
Cross-currency swaps – (10) – (10)
Forward foreign currency contracts – (14) – (14)
Futures (4) – – (4)
(4) (74) – (78)

132 ACCIDENT COMPENSATION CORPORATION

2016
$M Level 1 Level 2 Level 3 Total
Financial assets
Derivative financial instruments
Interest rate swaps – 651 – 651
Credit default swaps – 1 – 1
Cross currency swaps – 35 – 35
Forward foreign currency contracts – 162 – 162
Futures 28 – – 28
28 849 – 877
Financial assets designated at fair value through
surplus or deficit
New Zealand equities 3,374 – 229 3,603
New Zealand government securities – 10,307 – 10,307
New Zealand debt securities – 5,744 179 5,923
Australian equities 2,083 18 15 2,116
Overseas equities 5,127 – 2 5,129
Overseas debt securities – 6,415 – 6,415
Other investments – – 43 43
10,584 22,484 468 33,536
10,612 23,333 468 34,413
Financial liabilities
Derivative financial instruments
Interest rate swaps – (18) – (18)
Credit default swaps – (2) – (2)
Cross-currency swaps – (4) – (4)
Forward foreign currency contracts – (20) – (20)
Futures (8) – – (8)
(8) (44) – (52)
Reconciliation of Level 3 fair value movements

$M 2017 2016
Opening balance 468 388
Total gains (losses) recognised in surplus or (deficit) (5) 53
Purchases 433 77
Sales (44) (19)
Settlements (8) (30)
Transfers into Level 3 1 7
Transfers out of Level 3 – (8)
Closing balance 845 468
Total gains stated on Level 3 instruments still held at balance date 8 55
Transfers between levels

Investment securities were transferred out of Level 3 when it was determined that the level was not
appropriate for the securities.

There were no significant transfers between Level 1 and Level 2 during the year.

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 133

Level 3 sensitivity analysis

The following sensitivity analysis shows the impact on the consolidated net surplus (deficit) of reasonably
possible changes in one or more of the significant unobservable inputs into the fair values of investments in
Level 3, holding other inputs constant. Any change in the net surplus (deficit) for the period would result in a
corresponding movement in equity.

2017 2016
Impact on net surplus Impact on net surplus
(deficit) (deficit)
$M Increase Decrease Increase Decrease
Private equity holdings
Changes in the calculated share price of private 45 (45) 15 (15)
equity investments (10% movement)
Convertible notes
Change in discount rate (50 basis points (11) 11 (7) 7
movement)
Other investments
Change in discount rate (50 basis points (11) 12 (9) 10
movement)

14. Property, plant and equipment, and intangible assets

MEASUREMENT
Property, plant and equipment are initially recorded at cost including transaction costs. Subsequent to
initial recognition, all items classed as property, plant and equipment are stated at cost less accumulated
depreciation/amortisation and any impairment in value.

Internally generated assets are carried at cost less accumulated amortisation. Research costs incurred in
the investigation phase of internally generated software are expensed when incurred. Development costs
are accumulated as work in progress until the project is completed, at which stage direct project costs are
capitalised as an intangible asset.

Impairment occurs whenever events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. Impairments are recognised for the amount by which the asset’s carrying
amount exceeds its recoverable service amount. The recoverable service amount is the higher of an
asset’s fair value less costs to sell and value in use. Value in use is determined using either a depreciated
replacement cost approach, a restoration cost approach, or a service units approach depending on the
nature of the impairment.

DEPRECIATION AND AMORTISATION

Depreciation is calculated on a straight-line basis so as to allocate the cost or valuation of assets, less any
estimated residual value, over their estimated useful lives.

The estimated useful lives are as follows:

Lower of remaining life

Leasehold improvements of lease, or 10 years
Furniture, fittings and equipment 4 years
Mainframe computer and network equipment 5 years
Personal computer equipment 3 years
Computer software 5-7 years
Other assets 5-10 years

134 ACCIDENT COMPENSATION CORPORATION

 Leasehold Computer Internally Other
improve- equip- generated fixed
$M ments ment software assets Total
At 1 July 2015
At cost and valuation 36 81 430 43 590
Accumulated depreciation/amortisation (25) (68) (322) (37) (452)
Accumulated impairment – – (4) – (4)
Net carrying amount at 1 July 2015 11 13 104 6 134
Year ended 30 June 2016
Opening net carrying amount 11 13 104 6 134
Additions 2 5 11 5 23
Depreciation/amortisation charge (3) (7) (33) (3) (46)
Impairment losses and other (including – – (1) 1 –
disposals)
Closing net carrying amount 10 11 81 9 111
At 30 June 2016
At cost and valuation 38 73 436 43 590
Accumulated depreciation/amortisation (28) (62) (355) (34) (479)
Net carrying amount at 30 June 2016 10 11 81 9 111
Year ended 30 June 2017
Opening net carrying amount 10 11 81 9 111
Additions 3 5 38 2 48
Depreciation/amortisation charge (3) (5) (30) (3) (41)
Impairment losses and other (including – (1) (1) – (2)
disposals)
Closing net carrying amount 10 10 88 8 116
At 30 June 2017
At cost and valuation 41 77 473 43 634
Accumulated depreciation/amortisation (31) (67) (384) (35) (517)
Accumulated impairment – – (1) – (1)
Net carrying amount at 30 June 2017 10 10 88 8 116
Impairment and write-offs

The carrying amounts of all intangible assets are reviewed on an ongoing basis. Any impairment in value is
recognised immediately. Impairment losses and write-offs of $1.7 million were recognised for the year ended
30 June 2017 (2016: $1.0 million).

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 135

15. Payables and accrued liabilities
Payables and accrued liabilities are carried at amortised cost and due to their short-term nature are not
discounted.

 $M 2017 2016

Payables under exchange transactions
Unsettled investment transactions 631 838
Claims expenditure 11 13
WorkSafe New Zealand 3 3
Sundry creditors 17 22
Other accrued expenditure 59 67
Total payables under exchange transactions 721 943
Payables under non-exchange transactions
Goods and services tax 1 –
PAYE and earnings-related deductions 12 12
Total payables under non-exchange transactions 13 12
Total payables and accrued liabilities 734 955

Current 734 955

Non-current – –
Total payables and accrued liabilities 734 955

16. Provisions
Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a
past event; it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation; and a reliable estimate of the amount of the obligation can be made. Provisions are
measured at the best estimate of expected future cash flows and discounted to present value where the
effect is material.

 $M 2017 2016

Employee benefits 45 42
Leasehold restoration 1 1
Restructuring 1 –
Total provisions 47 43

Current 35 32
Non-current 12 11
Total provisions 47 43

MOVEMENTS IN PROVISIONS
Movement for each material class of provision is set out below.

(a) Employee benefits

Employee benefits that are expected to be settled within 12 months of balance date are measured at
nominal values based on accrued entitlements at current rates of pay. These include salaries and wages
accrued to balance date, annual leave earned but not yet taken at balance date, and long-service leave
entitlements expected to be settled within 12 months.

Entitlements that are payable beyond 12 months, such as long-service leave and retirement benefits, are
recognised at the best estimate of the expected future cash outflows, discounted using the discount rate
applied in determining the actuarial estimate of the outstanding claims liability.

ACC operates a defined contribution plan. Contributions to this are expensed when incurred.

136 ACCIDENT COMPENSATION CORPORATION

 $M 2017 2016
Opening balance 42 40
Paid out during the year (37) (37)
Additional provision made during the year 42 40
Reversal of unused provision (2) (1)
Closing balance 45 42
(b) Leasehold restoration

Under certain lease agreements at the end of the lease term ACC is required to restore leasehold properties
to the condition as at the commencement of the lease. A provision of $1 million (2016: $1 million) for the costs
of doing this has been made accordingly.

(c) Restructuring

A provision of $1 million for costs was made arising from the restructuring of business groups to deliver
better customer experiences and outcomes.

17. Commitments
Capital commitments

 $M 2017 2016

Investment-related 271 102
Total capital commitments 271 102
ACC has committed to provide a $123.1 million term debt facility to the Wellington Gateway Partnership SPV.
As at 30 June 2017, ACC had an undrawn commitment to the SPV of $41.9 million (2016: $73.7 million).

ACC has also committed a $134.6 million debt facility to NX2 LP. As at 30 June 2017, there was an undrawn
commitment to NX2 LP of $120.5 million.

The private equity portfolio includes investments in several venture capital/private equity funds. In these
investments, funds seek commitments from investors and only ‘call’ for the committed funds as they are
required. ACC has committed to invest up to a total of $262.9 million (2016: $128.9 million) in these funds. As
at 30 June 2017, ACC had undrawn commitments to these funds totalling $108.2 million (2016: $24.7 million).

In 2016 there was a $4.0 million commitment to a lessee to reimburse them for costs incurred in extending a
building.

Operating leases

ACC leases premises for its branch network and its corporate offices under non-cancellable operating lease
agreements. These lease agreements have varying terms and renewal options. Operating lease incentives
are recognised as a liability when received and subsequently reduced by an offset to rental expenses and a
corresponding reduction to the liability.

The future aggregate minimum lease payments to be paid under non-cancellable operating leases are as
follows:

$M 2017 2016
Non-cancellable operating leases
Within one year 20 19
After one year but not more than five years 59 57
More than five years 41 40
Total non-cancellable operating leases 120 116 Statement of
performance
and financial
statements

ANNUAL REPORT 2017 137

18. Contingent liabilities
Litigation involving ACC arises almost exclusively from challenges to operational decisions made by ACC
through the statutory review and appeal process. No accrual has been made for contingent liabilities which
could arise, as these disputes are issue-based and ACC’s active management of litigation means that it will
be either settling or defending, depending on the merits of the issue in dispute. ACC’s Board believes the
resolution of outstanding appeals will not have any material effect on the financial statements of ACC.

As at 30 June 2017, there were no contingent liabilities (2016: $0.45 million).

19. Related parties

(A) INVESTMENT IN SUBSIDIARIES

ACC owns 100% (2016: 100%) of Shamrock Superannuation Limited which acts as the corporate trustee
for the ACC Superannuation Scheme. Shamrock Superannuation Limited is a non-trading New Zealand
entity that does not have a material impact on the financial position of ACC. The investment ACC holds in
Shamrock Superannuation Limited is valued at $100 (2016: $100).

(B) RELATED PARTY TRANSACTIONS

Transactions with other government agencies (for example, Government departments and Crown entities)
are not disclosed as related party transactions when they are consistent with the normal operating
arrangements between government agencies undertaken on the normal terms and conditions for such
transactions. Related party disclosures have not been made for transactions with related parties that are
within a normal supplier or client/recipient relationship, on terms and conditions no more or less favourable
than those that it is reasonable to expect ACC would have adopted in dealing with the party at arm’s length
in the same circumstances.

(C) KEY MANAGEMENT PERSONNEL

The compensation for key management personnel is set out below:

2017 2016
Board members
Remuneration ($000) 437 453
Full-time equivalent members 7.7 8.0
Executive team
Remuneration ($000) 4,162 3,698
Defined contribution plans ($000) 285 248
Full-time equivalent members 9.2 8.0
Total key management personnel remuneration ($000) 4,884 4,399
Total full-time equivalent personnel 16.9 16.0
Key management personnel did not receive any remuneration or compensation other than in their capacity
as key management personnel (2016: $nil).

ACC did not provide any compensation at non-arm’s length terms to close family members of key
management personnel during the year (2016: $nil). ACC did not provide any loans to key management
personnel or their close family members.

138 ACCIDENT COMPENSATION CORPORATION

(D) REMUNERATION OF EMPLOYEES
The number of employees whose remuneration was within specified bands is as follows:

$000 2017 2016 $000 2017 2016

$100 – $110 287 300 $380 – $390 – 1
$110 – $120 149 143 $390 – $400 1 –
$120 – $130 89 91 $400 – $410 1 2
$130 – $140 73 65 $410 – $420 – 2
$140 – $150 50 50 $420 – $430 1 –
$150 – $160 37 40 $430 – $440 1 –
$160 – $170 28 32 $440 – $450 – 2
$170 – $180 22 15 $450 – $460 2 1
$180 – $190 15 18 $460 – $470 1 1
$190 – $200 16 15 $470 – $480 1 1
$200 – $210 11 14 $480 – $490 1 –
$210 – $220 11 15 $490 – $500 2 2
$220 – $230 8 8 $500 – $510 – 1
$230 – $240 4 7 $510 – $520 2 –
$240 – $250 5 4 $520 – $530 2 –
$250 – $260 3 3 $540 – $550 – 1
$260 – $270 4 – $550 – $560 – 1
$270 – $280 4 2 $560 – $570 1 1
$280 – $290 6 1 $580 – $590 1 –
$290 – $300 1 8 $590 – $600 1 1
$300 – $310 3 3 $610 – $620 – 2
$310 – $320 6 2 $640 – $650 1 1
$320 – $330 1 – $660 – $670 1 –
$330 – $340 1 2 $690 – $700 1 –
$340 – $350 1 1 $700 – $710 1 1
$350 – $360 1 – $810 – $820 – 1
$360 – $370 – 1 $820 – $830 1 –
$370 – $380 1 1 $860 – $870 – 1
860 864
Average remuneration $146,224 $145,316
of above employees

There were 26 fortnightly pays included in the calculation of the above remuneration bands in 2017
compared with 27 in 2016.

Normalised to 26 fortnightly pays, a total of 747 employees earned more than $100,000 in 2016.

Eighty-three staff received redundancy payments or settlement payments in 2017, totalling $2,663,519 (2016:
42 staff $1,198,047), which is not included in the above table.

20. Events after balance sheet date

There were no significant events after balance date that require separate disclosure.

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 139

21. Explanation of significant variances against budget
The budget figures are those in ACC’s Service Agreement 2016/17. The Service Agreement 2016/17 was
prepared based on the claims valuation as at 31 December 2015, using discount rates at 31 March 2016.

The budget figures are consistent with the accounting policies adopted in preparing the financial
statements. The budget figures are un-audited.

Explanations for significant variations from the budgeted figures approved by the Board are as follows:

(A) STATEMENT OF COMPREHENSIVE REVENUE AND EXPENSE

Net levy revenue

Increased levy revenue is the result of increased exposures (liable earnings in the Work and Earners’
Accounts and number of motor vehicles and petrol volumes in the Motor Vehicle Account) as well as more
vehicle owners prepaying licence fees at the higher pre-June 2016 rate than anticipated in the budget.

Investment revenue

Investment income can be highly variable as it is dependent on movements in equity, bond and foreign
exchange markets. ACC budgets for investment income based on a projected 20-year median rate of return.
This means that ACC expects to exceed budget for 10 out of the next 20 years, and similarly to achieve lower
returns than budget for 10 out of the next 20 years.

Investment income was substantially higher than budget due to the combination of an excellent
performance by ACC’s investment team, the 22nd consecutive year that the Investment team has
outperformed against market benchmarks, and movements in investment markets.

Claims paid

Claims paid costs were 0.5% lower than budget. Claim registrations grew by 0.9% over the year compared
with expected growth of 1.9% at the time the budget was approved. Favourable variances were in vocational
services and elective surgery costs (lower volumes than anticipated) and in medical treatment (driven by the
lower increase in claim volumes registered than anticipated).

Weekly compensation costs exceeded budget due to an increase in claim volumes (5.7% growth compared
with budget expectation of 3.5% growth).

Increase in outstanding claims liability

The approved budgeted change in outstanding claims liability (OCL) was based on the December 2015
actuarial valuation of claims liability, and economic factors (such as interest rates) at 31 March 2016. The
actual change in OCL was based on the June 2017 actuarial valuation of claims liability using economic
factors at 30 June 2017.

The actual increase in the OCL was lower than the budgeted increase. There was an increase in interest
rates which decreased the OCL by $3.5 billion over the year. Other significant factors impacting on the OCL
were an increase in inflation assumptions ($1.2 billion increase), impact of change in claims experience and
modelling (mainly increased social rehabilitation serious injury costs and increased weekly compensation
costs, $0.9 billion increase), and impact due to pay equity and regularisation costs ($1.1 billion).

Movement in unexpired risk liability

The unexpired risk liability (URL) is the shortfall, if any, by Account between the levy income that ACC will
earn for a future period where the rate of levy income has been fixed and the actuarially calculated costs of
claims arising over the same future period. The budgeted increase in URL was the difference between the
budgeted calculation of the URL at 30 June 2016 and the budgeted calculation of the URL at 30 June 2017.

140 ACCIDENT COMPENSATION CORPORATION

The actual increase in URL was higher than the budgeted increase primarily because of the unanticipated
future cost of claims impacting the OCL (refer comments above), and the unanticipated reduction in Work
Account levy rates effective from 1 April 2017 that reduced the expected future levy income. Both factors
increased the shortfall between future levy income and claims costs.

(B) STATEMENT OF FINANCIAL POSITION

Receivables

The receivables balance is lower than budgeted. The major component of the change in receivables is
money owed to ACC for unsettled investment transactions such as the sale of equities and bonds. These
transactions are settled within a few days in accordance with market rules.

ACC actively trades its investments to maximise income based on real-time assessments of investment
opportunities by the Investment team. The volume of daily investment sales, and consequently the
size of the receivables balance, varies substantially over time as these assessments change. At the
time the budget was approved, market opportunities suggested that there would be more investment
sales with a correspondingly higher short-term receivables balance. However as at 30 June 2017, market
conditions resulted in slightly lower investment sales than anticipated when the budget was approved 15
months earlier.

Intangible assets

The value of intangible assets (primarily software) is lower than budget. When the budget was approved
it was expected that, as part of Shaping Our Future Transformation programme, significant investment in
new software would have occurred by 30 June 2017. A revised approach for the Transformation programme
was developed after the budget was approved which has changed expenditure from investment in
software to investment in ‘software as a service’ resulting in more programme costs being recognised as
operating costs.

Investments

The net investment asset balance is higher than budget reflecting the higher than budgeted investment
income earned over the financial year due to the excellent performance of the investment team combined
with movements in investment markets as well as higher levy revenue receipts than anticipated in
the budget.

Payables and accrued liabilities

The payables and accrued liabilities balance is lower than budgeted. The major movement in payables
and accrued liabilities is money owed by ACC for unsettled investment transactions such as the purchase
of equities and bonds. Investment market conditions resulted in lower investment purchases in the days
immediately before 30 June 2017 and therefore a lower short-term payables balance than anticipated when
the budget was approved.

Outstanding claims liability

The actual OCL, based on the June 2017 actuarial valuation of claims liability using economic factors at
30 June 2017, is higher than the budgeted OCL based on the December 2015 actuarial valuation of claims
liability, and economic factors at 31 March 2016.

Significant factors impacting the OCL include the pay equity and regularisation costs and higher costs
recognised in social rehabilitation and weekly compensation. Interest rates only marginally increased
between March 2016 and June 2017.

Statement of
performance
and financial
statements

ANNUAL REPORT 2017 141

Unexpired risk liability (URL)

The URL is the shortfall between the expected future levy income and future costs.

Future claim costs are higher than budgeted due to the impact of pay equity and regularisation costs
resulting from legislation changes and the impact of higher social rehabilitation and weekly compensation
costs. As a result there was a larger shortfall than budgeted between future levy income and future costs
which increased the URL above the approved budget.

(C) STATEMENT OF CASH FLOWS

Net cash inflow from operating activities was marginally higher than budget as levy revenue cash received
was above expectations due to higher exposures in the Work, Earners’ (liable earnings) and Motor Vehicle
Accounts (number of licensed vehicles and petrol volumes).

Higher investment income (dividends and interest received) also contributed to the positive cash inflow.

142 ACCIDENT COMPENSATION CORPORATION

 Chartered Accountants

INDEPENDENT AUDITOR’S REPORT

TO THE READERS OF ACCIDENT COMPENSATION CORPORATION’S GROUP FINANCIAL

STATEMENTS AND PERFORMANCE INFORMATION FOR THE YEAR ENDED
30 JUNE 2017

The Auditor-General is the auditor of Accident Compensation Corporation group (the Group). The Auditor-
General has appointed me, Grant Taylor, using the staff and resources of EY, to carry out the audit of the
financial statements and the performance information, including the performance information for
appropriations, of the Group on his behalf.
Opinion
We have audited:
- the financial statements of the Group on pages 94 to 142, that comprise the statement of financial
position as at 30 June 2017, the statement of comprehensive revenue and expense, statement of
changes in equity and statement of cash flows for the year ended on that date and the notes to the
financial statements including a summary of significant accounting policies; and
- the performance information of the Group on pages 11 to 38 and 79 to 93.
In our opinion:
- the financial statements of the Group on pages 94 to 142:
- present fairly, in all material respects:
- its financial position as at 30 June 2017; and
- its financial performance and cash flows for the year then ended; and
- comply with generally accepted accounting practice in New Zealand in accordance with Public
Benefit Entity Reporting Standards.
- the performance information on pages 11 to 38 and 79 to 93:
- presents fairly, in all material respects, the Group’s performance for the year ended 30 June
2017, including:
- for each class of reportable outputs:
- its standards of delivery performance achieved as compared with forecasts included
in the statement of performance expectations for the financial year; and
- its actual revenue and output expenses as compared with the forecasts included in
the statement of performance expectations for the financial year; and
- what has been achieved with the appropriations; and
- the actual expenses or capital expenditure incurred compared with the appropriated or
forecast expenses or capital expenditure.
- complies with generally accepted accounting practice in New Zealand.
Our audit was completed on 28 September 2017. This is the date at which our opinion is expressed.
The basis for our opinion is explained below. In addition, we outline the responsibilities of the Board and our
responsibilities relating to the financial statements and the performance information, we comment on other
information, and we explain our independence.
Basis for our opinion
We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate
the Professional and Ethical Standards and the International Standards on Auditing (New Zealand)
issued by the New Zealand Auditing and Assurance Standards Board. Our responsibilities under those
standards are further described in the Responsibilities of the auditor section of our report.

A member firm of Ernst & Young Global Limited

ANNUAL REPORT 2017 143

 We have fulfilled our responsibilities in accordance with the Auditor-General’s Auditing Standards.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Responsibilities of the Board for the financial statements and the performance information
The Board is responsible on behalf of the Group for preparing financial statements and performance
information that are fairly presented and comply with generally accepted accounting practice in New
Zealand. The Board is responsible for such internal control as it determines is necessary to enable it to
prepare financial statements and performance information that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements and the performance information, the Board is responsible on
behalf of the Group for assessing the Group’s ability to continue as a going concern. The Board is also
responsible for disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting, unless there is an intention to merge or to terminate the activities of the Group, or
there is no realistic alternative but to do so.
The Board’s responsibilities arise from the Crown Entities Act 2004, the Public Finance Act 1989 and the
Accident Compensation Act 2004.
Responsibilities of the auditor for the audit of the financial statements and the performance
information
Our objectives are to obtain reasonable assurance about whether the financial statements and the
performance information, as a whole, are free from material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit carried out in
accordance with the Auditor-General’s Auditing Standards will always detect a material misstatement
when it exists. Misstatements are differences or omissions of amounts or disclosures, and can arise from
fraud or error. Misstatements are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the decisions of readers, taken on the basis of these financial
statements and the performance information.
For the budget information reported in the financial statements and the performance information, our
procedures were limited to checking that the information agreed to the Group’s service agreement.
We did not evaluate the security and controls over the electronic publication of the financial statements
and the performance information.
As part of an audit in accordance with the Auditor-General’s Auditing Standards, we exercise
professional judgement and maintain professional scepticism throughout the audit. Also:
- We identify and assess the risks of material misstatement of the financial statements and the
performance information, whether due to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
- We obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
- We evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the Board.
- We evaluate the appropriateness of the reported performance information within the Group’s
framework for reporting its performance.
- We conclude on the appropriateness of the use of the going concern basis of accounting by the
Board and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s ability to continue as a going

A member firm of Ernst & Young Global Limited

144 ACCIDENT COMPENSATION CORPORATION

 concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditor’s report to the related disclosures in the financial statements and the performance
information or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based
on the audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Group to cease to continue as a going concern.
- We evaluate the overall presentation, structure and content of the financial statements and the
performance information, including the disclosures, and whether the financial statements and the
performance information represent the underlying transactions and events in a manner that
achieves fair presentation.
- We obtain sufficient appropriate audit evidence regarding the financial statements and the
performance information of the entities or business activities within the Group to express an opinion
on the consolidated financial statements and the consolidated performance information. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
We communicate with the Board regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
Our responsibilities arise from the Public Audit Act 2001.
Other information
The Board is responsible for the other information. The other information comprises the information
included on pages 1 to 10, 39 to 78 and 146 to 150, but does not include the financial statements and
the performance information, and our auditor’s report thereon.
Our opinion on the financial statements and the performance information does not cover the other
information and we do not express any form of audit opinion or assurance conclusion thereon.
In connection with our audit of the financial statements and the performance information, our
responsibility is to read the other information. In doing so, we consider whether the other information is
materially inconsistent with the financial statements and the performance information or our knowledge
obtained in the audit, or otherwise appears to be materially misstated. If, based on our work, we
conclude that there is a material misstatement of this other information, we are required to report that
fact. We have nothing to report in this regard.
Independence
We are independent of the Group in accordance with the independence requirements of the Auditor-
General’s Auditing Standards, which incorporate the independence requirements of Professional and
Ethical Standard 1 (Revised): Code of Ethics for Assurance Practitioners issued by the New Zealand
Auditing and Assurance Standards Board.
In addition to the audit we have carried out engagements in the areas of provision of assurance related
services and model methodology review, which are compatible with those independence requirements.
Other than the audit and these engagements, we have no relationship with or interests in the Group.

Grant Taylor
Ernst & Young
On behalf of the Auditor-General
Wellington, New Zealand

A member firm of Ernst & Young Global Limited

ANNUAL REPORT 2017 145

Glossary of terms
ACC Scheme
New Zealand’s no-fault accident insurance scheme that provides cover to all New Zealanders and
visitors to our country.

Accident Compensation Act 2001 (AC Act)

The major piece of legislation under which ACC is governed.

Better Public Services Result Areas 9 and 10

The State Services Commission guidelines that relate to enhanced digital solutions from government
to businesses and individuals.

Business customer
A business which pays a levy under the Scheme.

Case Manager
The ACC employee assigned to manage an injured person’s treatment and recovery needs.

Client
A person who makes a claim under the Scheme.

Compensatory damages
The ability to sue following personal injury. Under the ACC Scheme, individuals forego the right to sue
for compensatory damages.

Consumer price index

A measure of the price change of goods and services purchased by private New Zealand households.

CoverPlus Extra
Cover for self-employed people or contractors that allows them to choose how much income they want
covered if they have an accident and can’t work.

Crown entity
An organisation in which the Government has a controlling interest.

Customer
A client, provider or business customer.

Durable-return-to-work rate
A measure of the percentage of clients who have returned to work and have remained at work.

Earners’ Account
The Account for injuries that occur outside work (eg at home or playing sport).

Entitlement claims
A claim that has received additional support such as weekly compensation or social or vocational
rehabilitation for a covered injury, as well any funded medical treatment required.

146 ACCIDENT COMPENSATION CORPORATION

Fully-funded
Glossary of
A claim that has received additional support such as weekly compensation or social or vocational terms
rehabilitation for a covered injury, as well any funded medical treatment required.

Full-time equivalent (FTE)

The hours worked by one employee on a full-time basis, generally considered to be 35-40 hours
per week.

Gradual process claims

Claims as a result of injuries that have occurred due to prolonged exposure in the workplace to
conditions that result in some form of harm (eg hearing loss).

Grandparenting provision
A provision in which an old rule continues to apply to some existing situations while a new rule will
apply to all future cases.

Health care inflation

The increase in the cost of health care, commonly expressed as an annual percentage.

In-between travel
Travel between clients by home and community support workers.

Key performance indicator (KPI)

A measure of whether an employee’s, team’s or business unit’s agreed performance goals or result
targets have been achieved or met.

Labour cost inflation

The increase in the cost of salaries and wages paid to workers, commonly expressed as an annual
percentage.

Levied accounts
The three Accounts (Motor Vehicle, Earners’ and Work) whose funds are derived from levies.

Levies
Amounts charged, separate from general taxation, and used to cover the cost of injuries caused by an
accident within the Motor Vehicle, Earners’ and Work Accounts.

Motor Vehicle Account

The Account for all road-related injuries.

Non-Earners’ Account
The Account for people not in the workforce, such as children or retirees.

On-boarding programme
An induction process for new employees, which is more inclusive than traditional orientation
programmes.

Outstanding claims liability (OCL)

An estimate of the present value of expected future payments on all existing ACC claims.

Pay-as-you-go basis
Funding the cost of injuries as the costs are incurred.
ANNUAL REPORT 2017 147
PAYE (pay-as-you-earn)
A system of taxation where an employer is responsible for deducting tax from an employee’s taxable
wage and salaries, and sending those deductions to Inland Revenue on the employee’s behalf.

Provider
A person or organisation providing a treatment or rehabilitation service to a client (eg a GP or
physiotherapist).

Return on investment
The return or benefit obtained from an investment over and above the original investment, commonly
expressed as a percentage or ratio.

Service Agreement
The annual agreement with the Minister for ACC setting out the services we will deliver and the
expected performance standards.

Shaping Our Future

Our overarching strategy to look at how we operate, from our technology to how we train our people,
while putting the customer at the centre of everything we do.

SportSmart
Our sports injury prevention programme.

Statement of Intent
A statutory document that covers a four-year period and outlines our medium-term strategic
intentions.

Strategic intentions
The areas that ACC has identified as needing the most focus during the period of the Statement of
Intent (2015-2019).

Superimposed inflation
Increase in costs over and above baseline inflation.

Tika
An internal ACC programme to ensure we do the right thing, in the right way, at the right time for our
customers to improve our internal and external customers’ experience.

Transformation programme
A series of projects that are focused on improving our systems, processes, and employee capability.

Treatment Injury Account

The Account for injuries caused by treatment.

Weekly compensation
Payments to clients who cannot work because of an injury, based on 80% of weekly income (capped)
before the injury occurred.

Work Account
The Account for injuries that occur in the workplace.

148 ACCIDENT COMPENSATION CORPORATION

Directory
Corporate office
information@acc.co.nz (04) 816 7400 PO Box 242, Te Whanga-nui-a-Tara / Wellington 6140
Accident Compensation Corporation
Level 2, Justice Centre
19 Aitken Street
Te Whanga-nui-a-Tara / Wellington 6011

Claims
claims@acc.co.nz PO Box 242, Te Whanga-nui-a-Tara / Wellington 6140
Claims helpline 0800 101 996
Treatment Injury Centre 0800 735 566 PO Box 430, Ōtepoti / Dunedin 9054
Sensitive claims 0800 735 566 sensitiveclaims@acc.co.nz
PO Box 1426, Te Whanga-nui-a-Tara / Wellington 6140
Accidental death 0800 222 075
Deaf community fax 0800 332 354 deaf@acc.co.nz
Overseas callers +64 7 848 7400

Business and levies

business@acc.co.nz PO Box 795, Te Whanga-nui-a-Tara / Wellington 6140
Business Service Centre 0800 222 776
Employers 0800 222 776
Self-employed 0508 426 837
Agents and advisors 0800 222 991
Overseas callers +64 4 816 7880
Debt management 0800 729 538 PO Box 3248, Te Whanga-nui-a-Tara / Wellington 6140

Providers
providerhelp@acc.co.nz PO Box 90341, Tāmaki-makau-rau / Auckland 1142
Provider helpline 0800 222 070

Injury prevention
information@acc.co.nz PO Box 242, Te Whanga-nui-a-Tara / Wellington 6140
Publications 0800 844 657
ACC injury prevention unit (04) 816 7400

Injury management (for employers)

returntowork@acc.co.nz Private Bag 9000, Heretaunga / Hastings
Injury management team 0800 101 996

Concerns and complaints

customerfeedback@acc.co.nz Freepost 264, PO Box 892, Kirikiriroa / Hamilton 3240
Customer resolution 0800 650 222
Overseas callers +64 7 848 7403

Preventing fraud
collection.collation@acc.co.nz
Preventing fraud 0508 2223 7283

Media
media@acc.co.nz PO Box 242, Te Whanga-nui-a-Tara / Wellington 6140
Media enquiries 027 493 6858

More contact information, including branch details, Official Information Act requests and reviews, is available at
www.acc.co.nz/contact/

ANNUAL REPORT 2017 149

 www.acc.co.nz
0800 101 996

ACC7811  September 2017  Print ISSN 1177–6013  Online ISSN 1177–6021

Printed in New Zealand on paper sourced from well-managed sustainable forests
using oil free, soy-based vegetable inks